Good morning, everyone, and welcome to today's PVH Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call will be recorded and then I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Sheryl Freeman, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and welcome to the PVH Corp. Second Quarter 2023 Earnings Conference Call. Leading the call today will be Stefan Larsson, 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 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 August 30, 2023, 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 include PVH's right to change its strategies, objectives, expectations and intentions and the company's ability to realize anticipated benefits and savings from divestitures, restructurings and similar plans such as the planned cost efficiency action announced in August 2022 and its 2021 sale of assets of, and exit from, its Heritage Brands business to focus on its Calvin Klein and Tommy Hilfiger businesses. PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimates 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 second quarter 2023 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 call over to Stefan Larsson.

Thank you, Sheryl, and good morning, everyone, and thank you for joining our call today. For the second quarter, we delivered another strong performance. We grew revenue by 4% on a reported basis and 2% in constant currency, and we beat the expectations on our bottom line on a non-GAAP basis driven by our disciplined execution of the PVH+ Plan, our long-term brand-building growth plan. In the quarter, we again drove double-digit growth in our direct-to-consumer businesses with double-digit increases in both our stores and in our owned and operated e-commerce, which are the channels where we are able to impact the shopping experience the fastest. Our D2C business will increasingly create a halo for our brands, that benefit the entire marketplace and we are excited about the accelerated momentum we are building there. Looking ahead, we are increasing our full-year outlook for our non-GAAP EPS guidance based on the confidence we have in our ability to execute to PVH+ Plan in the back half of the year. By focusing on what we can control, for the full year 2023, we remain well-positioned to deliver solid top-line growth in addition to double-digit EPS growth. We have strong conviction in the long-term potential of our brands and business and one of the ways we show it is through our share buybacks. In just the second quarter alone, we completed $200 million in buybacks, which was our initial plan for the full year. We are now planning to increase our buybacks for a total of up to $400 million for the full year. Independent of the macro-climate, the PVH+ Plan combined with our strong ability to execute will enable us to drive profitable long-term brand accretive growth, and geared towards our vision to build Calvin Klein and Tommy Hilfiger into the most…

Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, we are pleased with our strong results for the second quarter, driven by our iconic brands and disciplined execution of the PVH+ Plan. We continue to build on our track record of strong performance, delivering on our top line guidance, while exceeding bottom line guidance as we compete to win in this highly dynamic global environment. We delivered reported revenue growth of 4% for the quarter, with constant currency revenue growth of 2%, in line with our guidance, and we exceeded our earnings guidance with earnings per share of $1.98, driven by lower expenses and a lower tax rate. Additionally, we returned $200 million to shareholders during the second quarter through the repurchase of 2.4 million shares of common stock, which was earlier than planned and enabled by our strong balance sheet. Importantly, our inventory levels at quarter end are well positioned, up 6% compared to last year and fully aligned with our projected sales growth. And as Stefan mentioned, with the significant progress we are making to deliver a demand and data-driven supply chain, we now expect our inventory levels to be significantly lower than 2022 in the second half of 2023, and that improvement will continue through 2024 with our announced 25% reduction in inventory as a percentage of sales. As we look forward to the rest of the year, we expect our strong first half performance to continue into the second half. And as a result, our full year business outlook remains largely unchanged. We are reaffirming our full year revenue guidance and operating margin outlook and raising our non-GAAP EPS outlook to a record $10.35. In addition to the continued strong delivery of our…

[Operator Instructions] Our first question comes from Bob Drbul with Guggenheim. Please go ahead.

Hi. Good morning. Just a couple of questions for you. On North America, can you just elaborate a bit more just on the traction that you are gaining in North America, especially an update on the profitability? And then I guess the second question around North America is just some of the commentary you made around US wholesale. Can you just expand a little bit more in terms of what you're seeing in your assumptions into the back half of the year on the US wholesale business? Thanks.

Well, good morning, and thanks, Bob. What's really exciting for us to see and to share this quarter is that the critically important work that we started a year ago to build this sustainable, strong foundation for brand accretive growth in our home market, both Calvin and Tommy be loved in America. We haven't put enough focus on the domestic consumer. So as part of PVH+, we put laser focus on building this sustainable foundation. And as we have mentioned through the quarters, we have seen under the surface improvement, but this is a pivotal quarter because you can all see it. And starting with Calvin and Tommy, both driving mid-single-digit growth in D2C in a very choppy macro. And we're driving this growth, both in stores and in e-commerce. And it's directly driven by the PVH+ execution in product, marketing and the marketplace execution. So what do we see? We see that AURs are up. We see that the gross margin rate is up. We see that through the simplification of how we work and get things done, we see that the flow through in EBIT rate improvements and Zac will be able to take you through a little bit more details on that. But it's really a pivotal moment where you now see the proof points that we have been working on over the past year. And mentioning a little bit more about how we do this from a PVH+ perspective. Because across both Calvin and Tommy, we start with leveraging the strength of the brand love for the brands then we build out category offense and best hero products. And you can see in Tommy, this quarter, the global bestsellers drove 20% growth. And this is, again, in these market conditions, 20% growth. And in Calvin, the…

Yes, I mean, a significant step-up in profitability for both Tommy and Calvin order in North America, greater than 6% in Tommy, greater than 8% in Calvin. And I think what we love about that result is how widespread that improvement was. Improvement across both brands, improvement across all channels across both brands and higher gross margin percent and stronger SG&A management. So really a widespread step forward. So mid to high single digits is really only the first step in our commitment towards low teens, but it's an important one and a sizable one this quarter.

Yes. Thanks, Zac. And Bob, when it comes to US wholesale, we know that the channel is choppy and challenged. But what's exciting under the surface here, again, is that when we lean in with our most important partners like Macy's, and we focus on bringing PVH+ to life for Calvin and Tommy together, we see some really encouraging results. So this past quarter, as we mentioned, we were able to drive significant growth in the pilot doors in the doors where the top doors where we execute the category offense, the hero products, we have the inventory. We have the vendor. We work with Macy's to have more staffing on the floor. So we treated more as the best expression of our stores. And then we see immediately the performance driving. So it's another proof point that over the next few quarters, we will build out together with our best wholesale partners.

Thank you. We'll take our next question from Jay Sole with UBS.

Great. Thank you so much. Stefan, I'm interested in your comments on delivery times, improving the inventory reduction you're talking about, you just mentioned simplification. Can you maybe just talk about the developments in the supply chain side of the PVH+ Plan over the last 90 days and give us such an idea about how that part of the plan is trending and what you're seeing there and how you're getting some of these improvements that you're talking about?

Yes, absolutely. Thanks, Jay. So let's just start with -- we really strengthened our supply chain leadership when David joined us with his H&M Group experience. And he was able to work with our strong team to just get them more focused on and get us more focused on getting the basics right to start with on-time delivery, shorter transportation lead times, more responsive production solutions and models, more data-driven planning tools. And in doing that work like and this is my experience having deep experience in the supply chain side is you have to get the foundational pieces right, then you have to work super closely upstream with the product creation teams. And once you have that done, which we got done sooner than expected then we started we started looking at what could be a next breakthrough step. And then we realized that, that breakthrough is much closer than what we expected. So that's what enabled us to set the target of 25% less inventory in relation to sales by the end of 2024. And we are already internally driving to our staff. And that comes back to what I mentioned earlier. It's just -- it starts with how we plan the assortment, how we build the assortment and having an intention behind every single product and then connecting that to better demand planning and then connecting that to better allocation. And we see so part of the D2C growth in North America right now is fueled by that better planning and that better allocation. But we're just in the beginning, but the 25% is significant. And if you look at the value creation potential is that it's real. And then you look at even the sustainability component of -- instead of running the business with too much inventory at any given time that most do in our sector, we're able to get much better match between what we create, plan and produce is actually much closer to what the consumer wants. So, yes, very exciting.

Got it. Thanks.

Thank you. We'll take our next question from Ike Boruchow with Wells Fargo.

Hey, this is Robert on behalf of Ike. Just had a quick question on -- do you have any reads on your fall product by brand?

Yes. Thanks, Rob. So early days for fall but positive response. So both Zac and I mentioned that we are in great shape inventory-wise. And there are perspectives -- two dimensions of inventory. One is the level. So we're in great shape across the brands and across regions when it comes to the levels. We're also in great shape when it comes to the composition. So we all know that it's so important in our sector to have fresh inventory to when you start to fall season to have more fall season product, more fresh products this year than what we had last year, and that's exactly where we are. And then we look at the initial sell-through reads fall and positive across both brands all regions, early, but very positive.

Thank you.

Thank you. We'll take our next question from Chris Nardone with Bank of America.

Great. Good morning, guys. I wanted to talk a little bit more about some of the moving pieces in SG&A. First, if you could talk about the cadence and when we should start recognizing the $100 million in net savings. I think you actually said it might be greater than that. And then secondly, in terms of marketing, is the 6% target this year a level where you feel comfortable over the medium term to drive towards your PVH+ targets or is there a need to continue to drift that percentage higher? Thank you.

Yes. Thanks, Chris. So let me start, and then I'll hand it over to Zac. But from a cost efficiency perspective. What's most -- what's always been most important for us is to find the most simple, close to consumer way of working that gives us speed in decision-making. And that's what made us set out the initiative this year to right-size the organization to the PVH+ Plan. And Zac will take you through more in detail how we executed on this. And that's going to be a continuous work for us to get closer to the consumer and to get faster because at the end of the day, we have the brands, we have the vision, we have the plan to win and outcompete our competition on medium, long term is our ability to execute. And most big companies get slow, gets bureaucratic. And that's -- I'm out a lot working with our teams to say, how can we work like a small company? How can we get the speed of when we are out seeing in stores, what we need from the consumer how can we cut the time in half to take action? So that's the beginning on the efficiency part. The second part is then connected to the marketing piece, which is investing into growth. So part of the efficiencies we free up is to invest in the growth. And marketing the 20% increase in marketing, as Zac mentioned, it's -- we feel really good about that on the near term and medium term to your perspective because there is also a lot of effectiveness work we have to do in terms of how are we spending those investments. So are we spending them to cut through? Are we spending them in consumer-facing initiatives? Are we spending them in the talent? Are we spending them in the -- in the big events that we have to cut through? So it's both the investment levels that we are increasing, which I feel really good about. And then it's the effectiveness. And then we just continuously monitor to see that we are reinvesting enough to cut through.

Yes. Thanks, Chris. I think we're really proud of the work we started last year on redefining how we spend SG&A. So we've seen already in the first half of the year, significant investments in DTC, which comes with margin expansion and the marketing spend we've talked about, which we know comes to the benefits there. So as we look forward into the second half, we absolutely expect to continue on those investments of driving DTC growth and marketing as key SG&A investments. But to your point, on the other side of things, what starts to become an increasingly powerful impact is the work we've done on our previously committed 10% people cost reduction. So the program, we took some significant steps in the second quarter. We will finish the program in the third quarter. So a quarter early from what we had planned previously and the impact is slightly ahead of the $100 million we've committed. So I think we'll see some impact of that in the third quarter. But in reality, we start to see that pick up most impact really into fourth quarter, and then that will carry forward into how that annualizes for next year.

Thank you. We'll take our next question from Paul Kearney with Barclays.

Good morning. Thanks for taking my question and great to see the progress in North America. A question on guidance. I think it was mentioned that the change in guidance was mostly driven from lower tax and share repurchases. Given the supply chain improvements and finishing the SG&A improvements a quarter early, just wondering whether you're seeing anything incremental offset this benefit in the back half or if it's just some conservatism on the demand side? Thanks.

Thanks, Paul. So this is Stefan. Let me just start by saying we're able to take our guidance up because we continue to deliver what we said we were going to do from an operational standpoint on how we drive desirability in the brands and how we execute those in the marketplace. And then that leaves us to be able to invest back in the business and invest in growth. And that leads to -- that's the foundational strength that leads to us taking up the guidance. And then Zac if you want to mention what it means in terms of our ability to -- because when that works really well, we are first investing back into growth. And then secondly, as we shared this quarter, we are able to invest back more into ourselves through the increased doubling of the share buyback.

Yes, the year continues to shape up nearly exactly as we had planned really across all dimensions from there. So the small sort of puts and takes on the business. But -- so that's leading us with significant confidence. And I think if we take a look at the second half, really gaining confidence in our ability to drive the continued profitability improvements that we've got committed. On the increase side of things, two important impacts. One is on the share buybacks. And I think it's really important to comment on the value of that inventory improvement we're seeing that frees up working capital to turn around and invest in either other elements of the PVH+ Plan to drive growth or as we saw with the announcement we made on the share buybacks, a significant increase from $200 million to $400 million full year, including $200 million of share buybacks in the second quarter alone. And so as you mentioned, some of that work around inventory and of the plans, what that does is it frees up capital there to return back to shareholders. And the other half of that is the tax improvement from 24% to 22%. That increasing as well representing the rest of the increase as we continue to work a tax rate down as we committed to over the prior year. So I think overall, we feel great about where the operating business is coming in and what that sort of certainty is allowing us is to free up the capacity to return cash back to shareholders via the share buyback and that's what's leading to the increase.

Operator, we have time for one more question.

Thank you, sir. That question will come from Brooke Roach with Goldman Sachs.

Good morning and thank you very much for taking our question. Stefan, I was hoping that you could elaborate a bit more on the outlook that you see for AUR and pricing opportunity as you balance the brand and product investments you're making as you develop a PVH+ Plan? And then secondly, Zac, can you remind us the opportunities that you see ahead to recapture some of the outsized promotions that you saw last holiday as you move into this holiday season? Thank you.

Thanks, Brooke. So on the AUR side, it's exciting to see because I spend a lot of my time in product category, work and product category reviews and looking at product development and the pricing opportunity. So we have a significant AUR opportunity over time leaning into the category offense. And every time we lean into a category, every time we develop the best hero products in the market better than our competition, we see an opportunity to sell through at a higher AUR. So very encouraged early days still. And that is something that over time, we just continue to create better product value for the consumer.

Yes and I think on the promotion side, Brooke, we, of course, will continue to participate actively competing to win in the marketplace of where this is. But one of the reasons why we're so excited about where the inventory levels are today and will continue to improve throughout the back half of the year is that, that's going to allow us to make sure that we're able to, ourselves practically make those choices. And I think we can think about annualizing what last year holiday season was. There was a lot of things in the industry on the other side of this. We will have the chance to choose where to participate or not. And so we would expect to see gross margin improvement versus last year because of that strength of getting our inventories into the spot. We feel great about them heading into the back half of the year.

Thanks, Zac, and just to --

Thank you very much.

Thank you, Brooke, and just to wrap up. So what we have is Tommy and Calvin, two unique absolutely unique and globally iconic brands. And what the PVH+ Plan is all about is us leaning into the DNA of each of these brands and drive brand desirability in product, marketing, marketplace and then at the same time, build out that underlying growth engine business engine that enabled us to build the brand and drive growth in an increasingly systematic repeatable way. So the real strength and the real value will come from the compounded effect of us doing this quarter after quarter, month after month, week after week like consistent in direction, consistent in focus and just relentless in step by step by step. So thank you for being on this journey with us and have a great week everyone.

This concludes the PVH Second Quarter 2023 Earnings Conference Call. You may disconnect your line at this time and have a wonderful day.