We are a company transformed, focused on global growth.
During 2010, PVH not only transformed itself but also delivered strong revenue growth and high operating margins along with substantial free cash flow. By leveraging our best-in-class platforms, which encompass wholesale, retail and licensing operations, we seek to further penetrate our iconic lifestyle brands across new categories, existing markets and new markets.
We believe that we have multiple growth opportunities driving retail sales of our Calvin Klein, Tommy Hilfiger and Heritage Brands businesses from $14.6 billion in 2010 to close to $20 billion over the next few years. This should translate into earnings per share growth of over 15%. We would expect significant growth to be generated from our international operations, driven by the following key strategies:
Since our acquisition of Calvin Klein in 2003, the business' management has driven the growth of the brand's worldwide retail sales at a 13% compound annual growth rate. Significant growth opportunities remain to drive Calvin Klein from $6.7 billion in worldwide retail revenues in 2010 to over $9.0 billion over the next few years. These key opportunities include:
Continue to Expand the Calvin Klein Collection Brand Halo
The principal growth opportunity for our "halo" brand is to broaden the current distribution through the continued opening of freestanding stores operated throughout the world by our experienced retail partners, as well as through expanded distribution by our wholesale men's and women's high-end collection apparel and accessories business within premier department stores and specialty stores in both the United States and overseas.
Leverage the ck Calvin Klein Bridge Opportunities Globally
Our "bridge" brand, ck Calvin Klein, provides significant growth opportunities, particularly in Europe and Asia, where apparel and accessories are more traditionally sold in the upper-moderate to upper "bridge" price range. Specific growth opportunities include:
- Broadening distribution of apparel and accessories through continued expansion in key markets such as Southeast Asia, China and Japan, as well as Europe and the Middle East; and
- Expansion of the watch and jewelry lines worldwide.
Calvin Klein Represents the Largest Growth Opportunity
We believe that the Calvin Klein white label "better" brand presents the largest growth opportunity, particularly in the United States, Canada and Mexico. Growth opportunities for this brand include:
- Continued expansion of our men's sportswear business;
- Continued development of the licensed lines of men's and women's footwear, handbags, women's sportswear, women's suits, dresses, women's swimwear, men's and women's outerwear, accessories, and women's clothing/apparel/performance apparel;
- Introduction and growth of the ck one lifestyle brand consisting of contemporary men's and women's jeanswear, underwear, and swimwear, inspired by the iconic, globally recognized ck one fragrance brand (Spring 2011);
- Introduction and growth of new fragrance offerings and brand extensions, such as Calvin Klein Beauty (Fall 2010), Forbidden Euphoria (Fall 2011), and ck one Shock (Fall 2011) fragrances;
- Introduction and growth of new underwear brand extensions such as the men's X (Fall 2010), women's Envy (Fall 2010), and women's Naked Glamour (Fall 2011) lines;
- Introduction and growth of new jeanswear extensions such as the men's and women's X Jean (Fall 2010) lines; and
- Pursuit of additional licensing opportunities for new product lines such as the introduction of Calvin Klein Golf men's and women's apparel and accessories in Europe (Spring 2010), as well as in Asia and Japan (Fall 2011), and the launch of Calvin Klein Jeans footwear for men's and women's (Spring 2011), eyewear (Fall 2011), and kids footwear (Fall 2011).
Our acquisition of Tommy Hilfiger was indeed the biggest highlight of 2010. We always knew that Tommy Hilfiger was a proven iconic global lifestyle brand overseen by a strong management team, utilizing an excellent international operating platform and distribution network. Even with our own high expectations, we have been exceedingly pleased with the business' performance, cash flow generation and growth prospects.
Over the past five years, the Tommy Hilfiger management team has driven the growth of the brand's worldwide retail sales at a 13% compound annual growth rate through its focused expansion in Europe and Japan, repositioning of the brand in North America and further penetration of its licensed regions and product categories. Significant growth opportunities remain to drive Tommy Hilfiger from $4.6 billion in worldwide retail revenues in 2010 to over $6.5 billion over the next few years. Our key growth strategies include:
Continue to Grow the European Business
We believe that there is significant potential for further expansion in Europe:
- Growing the business in product categories that we believe are currently underdeveloped in Europe such as pants, outerwear, underwear and accessories, as well as the womenswear collection;
- Increasing the Tommy Hilfiger brand's presence in underpenetrated markets where we believe there is growth potential such as Italy, France, the United Kingdom, Scandinavia and Central and Eastern Europe (including Russia), through both our own retail expansion and increased wholesale sales, which we intend to support with increased advertising and marketing activities; and
- Increasing Tommy Hilfiger's overall presence in Europe through the expansion of specialty and outlet retail stores.
Continue to Strengthen and Grow the North American Business
We intend to achieve growth in the North American business by:
- Expanding our strategic alliance with Macy's by leveraging our logistics capabilities and "preferred vendor" relationship with Macy's and adding product categories to the merchandise assortments, increasing and enhancing the locations of "shop-in-shop" stores in high-volume Macy's stores and featuring Tommy Hilfiger products in Macy's marketing campaigns; and
- Expanding product offerings by Tommy Hilfiger and its licensees in both the retail and wholesale channels.
Expansion Opportunities Outside of Europe and North America
- We intend to capitalize on opportunities, when the environment in Japan stabilizes, to grow the Tommy Hilfiger business in Japan by optimizing our store footprint, including the opening of new stores, introducing regional sizing, enhancing product offerings and other initiatives targeted at local market needs.
- We have taken back control of our China business from our former licensee in August 2011 and our India business from our former licensee in September 2011 and now have direct involvement in the operation of each of these businesses through joint ventures that include local partners. We believe this should put us in a better position to support the development and expansion of the business in these important markets, where we believe there are many opportunities for growth.
- We intend to continue a balanced strategy, acquiring licensees, distributors and franchisees where we believe we can achieve greater scale and success compared to our partners, while at the same time licensing businesses for product categories and markets when we believe experienced and/or local partners provide the best opportunity for success.
Further Penetrate e-Commerce Channel
In September 2009, Tommy Hilfiger re-launched its e-commerce business using a new platform in selected European countries and North America. We intend to seek to improve the online capabilities and functions of the e-commerce sites to improve the shopping experience and attract additional business.
Our Heritage Brands business had a very strong year, posting a 10% revenue increase in 2010, continuing a trend that began in the second half of 2009. While we continue to grow our market share in the United States, we are also looking to opportunistically expand the distribution of some of our heritage brands by leveraging our international infrastructure, and introducing them to new markets where we believe we can have the most impact with consumers. We believe that we can grow the Heritage Brands business from $3.3 billion in worldwide retail revenues in 2010 close to $4.0 billion over the next few years. Our key growth strategies include:
Continue to Strengthen the Competitive Position and Image Of Our Current Brand Portfolio
We intend for each of our brands to be a leader in its respective market segment in the United States, with strong consumer awareness and loyalty. We will continue to design and market our branded products to complement each other, satisfy lifestyle needs, emphasize product features important to our target consumers and increase consumer loyalty. We will seek to increase our market share in our businesses by expanding our presence through product extensions and increased floor space. We are also committed to investing in our brands through advertising and other means to maintain strong customer recognition of our brands.
Pursue International Growth
We intend to expand the international distribution of our brands. To date, we have done so principally through licensing. We intend to explore opportunities to develop larger European businesses for our heritage brands through the efforts of our newly formed PVH Europe division, which is managed by a team of Tommy Hilfiger executives and dedicated staff based in Amsterdam. Its first endeavor is operating the ARROW business in parts of Europe which commenced with the Fall 2011 collection. We have approximately 40 license agreements, covering approximately 120 territories outside of the United States to use our heritage brands in numerous product categories, including apparel, accessories, footwear, soft home goods and fragrances. We also conduct international business directly, selling dress furnishings and sportswear products to department and specialty stores throughout Canada and operate a select few stores in Canada. We believe that our strong brand portfolio and broad product offerings enable us to seek additional growth opportunities in geographic areas where we believe we are underpenetrated, such as Europe and Asia.
Other Strategic Opportunities
We continue to build our brand portfolio through acquisition and licensing opportunities. While we believe we have an attractive and diverse portfolio of brands with growth potential, we will also continue to explore acquisitions of companies or trademarks and licensing opportunities that we believe are additive to our overall business. New license opportunities allow us to fill new product and brand portfolio needs. We take a disciplined approach to acquisitions, seeking brands with broad consumer recognition that we can grow profitably and expand by leveraging our infrastructure and core competencies and, where appropriate, by extending the brand through licensing.
With worldwide retail sales of approximately $6.7 billion in 2010, we believe Calvin Klein is one of the best known designer names in the world, offering a modern design aesthetic. The Calvin Klein brands — Calvin Klein Collection, ck Calvin Klein and Calvin Klein — provide us with the opportunity to market products both domestically and internationally at higher price points, in higher-end distribution channels and to different consumer groups than most of our Heritage Brands business product offerings.
With worldwide retail sales of approximately $4.6 billion in 2010, Tommy Hilfiger, which is distributed in over 90 countries, is a global designer lifestyle brand. The brand celebrates the essence of “classic American cool” and “preppy with a twist” designs, and occupies a distinct position as an accessible but premium brand. Tommy Hilfiger offerings include a wide range of high quality apparel, accessories and lifestyle products with the brand enjoying a diverse consumer following and strong global brand awareness.
With 2010 worldwide retail sales of approximately $3.3 billion, our Heritage Brands business encompasses the design, sourcing and marketing of a varied selection of branded label dress shirts, neckwear, sportswear and footwear, as well as the licensing of our owned brands (other than the Calvin Klein and Tommy Hilfiger brands), for an assortment of products.