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PVH Corp. Reports 2012 Second Quarter Results

  • Non-GAAP EPS of $1.25 Exceeded the Top End of the Company’s Guidance by $0.05; GAAP EPS Was $1.19
  • Continued Momentum in Tommy Hilfiger North American and European Businesses Drove Earnings Performance
  • Full Year Non-GAAP EPS Guidance Raised to $6.25 to $6.32, an Increase of 16% to 17% over the Prior Year’s Non-GAAP EPS

NEW YORK--(BUSINESS WIRE)--Aug. 27, 2012-- PVH Corp. (NYSE: PVH) reported 2012 second quarter and year to date results.

Non-GAAP Amounts:

The discussions of historical results in this release that refer to non-GAAP amounts exclude the items which are described in this release under the heading “Non-GAAP Exclusions.” Reconciliations of GAAP to non-GAAP amounts are presented later in this release and identify and quantify all excluded items.

Overview of Second Quarter Results:

  • Earnings per share was $1.25 on a non-GAAP basis, which exceeded the Company’s guidance and represents a 17% increase over the prior year period’s non-GAAP earnings per share of $1.07.
  • GAAP earnings per share was $1.19 and represents a 29% increase over the prior year period’s GAAP earnings per share of $0.92.
  • Revenue of $1.337 billion was relatively flat as compared to the prior year period and was negatively impacted by $56 million, or 4%, attributable to foreign currency translation ($41 million) and the exit from the Izod women’s and Timberland wholesale sportswear businesses ($15 million). On a constant currency basis and excluding the impact of exited businesses, revenue increased 4%.

Second Quarter Business Review:

Tommy Hilfiger
Revenue in the Tommy Hilfiger business increased 4% over the prior year’s second quarter to $721.9 million, including a negative impact of $39 million, or 6%, related to foreign currency translation. On a constant currency basis, Tommy Hilfiger revenue increased 10%. The strong revenue increase was due principally to (i) retail comparable store sales growth of 11% in North America; and (ii) European retail comparable store sales growth of 15% and European wholesale growth of 9%, despite the ongoing challenging economic conditions in Europe.

On a non-GAAP basis, earnings before interest and taxes for the Tommy Hilfiger business increased 28% to $97.3 million from $75.8 million in the prior year’s second quarter, driven by the revenue increases discussed above and an improvement in operating margin. The operating margin increase was driven primarily by higher gross margins resulting from a significant increase in average unit retail selling prices globally, combined with the leveraging of expenses and operating expense synergies resulting from the Tommy Hilfiger North America integration. These positive results were partially offset by weakness in Japan, where the Company is currently in the process of strategically repositioning and investing in the brand.

On a GAAP basis, earnings before interest and taxes for the Tommy Hilfiger business increased 36% to $93.8 million, as compared to $69.1 million in the prior year’s second quarter. This increase was due principally to the net impact of the overall revenue and operating margin increases noted above, combined with a decrease in integration and restructuring costs.

Calvin Klein
The Calvin Klein business posted a 5% increase in revenue to $251.2 million from $239.9 million in the prior year’s second quarter. Comparable store sales for the Company’s North American Calvin Klein outlet retail business grew 5% in the quarter. On a constant currency basis, Calvin Klein royalty revenue increased 6%. Including a negative impact of $2 million, or 3%, related to foreign currency translation, Calvin Klein royalty revenue increased 3%. This increase was driven by strong performance globally in fragrance, women’s sportswear, dresses, footwear and handbags and was partially offset by a 10% decline in royalty revenue related to the Company’s global jeans and underwear licensee.

Earnings before interest and taxes for the Calvin Klein business was $60.2 million as compared to the prior year’s second quarter amount of $66.1 million. Calvin Klein revenue growth, which included higher average unit retail selling prices, was more than offset by a planned shift of approximately $10 million in advertising expenses into the second quarter.

Heritage Brands
Total revenue for the Heritage Brands business decreased 10% to $363.5 million as compared to $401.7 million in the prior year’s second quarter, driven in large part by a $15 million, or 4%, negative impact related to the exit from the Izod women’s and Timberland sportswear businesses. Excluding the impact of exited businesses, revenue for the Heritage Brands business decreased 6%. Comparable store sales in the Heritage Brands retail business were relatively flat compared to the prior year period, while the Company’s ongoing wholesale businesses experienced a 10% decrease, due principally to a reduction in dress furnishings sales to a mid-tier department store retailer.

Earnings before interest and taxes for the Heritage Brands business was $23.2 million, as compared to the prior year’s second quarter of $30.9 million on a non-GAAP basis and $24.3 million on a GAAP basis. The decrease in earnings before interest and taxes on a non-GAAP basis was due principally to the revenue decrease mentioned above. On a GAAP basis, this decrease was partially offset by the absence of certain costs incurred in 2011 in connection with the Company’s termination of its license to market sportswear under the Timberland brand.

Second Quarter Consolidated Earnings:

On a non-GAAP basis, earnings before interest and taxes increased to $154.2 million from $151.4 million in the prior year’s second quarter, including a negative impact of $6 million related to foreign currency translation and a $5.2 million increase in corporate expenses due principally to an increase in pension expense resulting from a decrease in discount rates. The overall increase in non-GAAP earnings before interest and taxes was driven by an increase of $21.6 million in the Tommy Hilfiger business, which includes a $4 million negative impact due to foreign currency translation. This increase was partially offset by earnings decreases of $7.7 million in the Heritage Brands business and $5.8 million in the Calvin Klein business, which includes the shift in advertising expenditures noted above of approximately $10 million along with a $2 million negative impact due to foreign currency translation.

On a GAAP basis, earnings before interest and taxes increased to $149.7 million as compared to $133.5 million in the prior year’s second quarter. The increase was due principally to a decrease of $13.3 million in integration and restructuring costs, combined with the net effect of the changes discussed above.

Net interest expense decreased $3.1 million as compared to the prior year’s second quarter to $28.4 million, due principally to lower debt levels in the current quarter.

The effective tax rate was 26.9% on a non-GAAP basis as compared to 34.7% on a non-GAAP basis in the prior year’s second quarter. The effective tax rate was 27.7% on a GAAP basis, as compared to 34.6% on a GAAP basis in the prior year’s second quarter. Continuing to positively impact the Company’s 2012 tax rates is an increase in the portion of the Company’s earnings being generated by the international Tommy Hilfiger business, a significant portion of which is subject to favorable tax rates, as well as the continuation of the tax synergies resulting from the Tommy Hilfiger acquisition.

Six Months Consolidated Results:

  • Earnings per share on a non-GAAP basis was $2.55 as compared to $2.31 for the prior year.
  • GAAP earnings per share was $2.46 as compared to $1.71 for the prior year.
  • Revenue increased 2% to $2.764 billion, including a negative impact of 3% attributable to foreign currency translation and the exited sportswear businesses. The overall $60.4 million increase in revenue was due to the net impact of:
    • A 6%, or $84.0 million, increase in the Tommy Hilfiger business, including a negative impact of 4% related to foreign currency translation. This increase was due principally to retail comparable store sales growth of 13% in North America and 11% in Europe, combined with growth of 9% in the European wholesale business.
    • A 6%, or $27.8 million, increase in the Calvin Klein business. Comparable store sales for the Company’s Calvin Klein outlet retail business grew 7% and royalty revenue increased 2%, including a negative impact of 2% related to foreign currency translation.
    • A 6%, or $51.4 million, decrease in the Heritage Brands business, including a negative impact of 2% related to the exited sportswear businesses. Comparable store sales in the Heritage Brands retail business remained relatively flat, while the Company’s ongoing wholesale businesses experienced an 8% decrease.
  • On a non-GAAP basis, earnings before interest and taxes decreased $8.7 million to $309.8 million. This change resulted from:
    • A $33.6 million increase in the Tommy Hilfiger business due principally to the revenue increase mentioned above combined with higher operating margins due to an increase in average unit retail selling prices and expense leverage.
    • A $3.1 million decrease in the Calvin Klein business, as revenue growth was more than offset by a planned decrease in gross margin rates resulting from higher product costs.
    • A $29.4 million decrease in the Heritage Brands business due principally to the revenue decrease mentioned above, combined with planned lower gross margin rates driven by higher product costs.
    • A $9.9 million increase in corporate expenses due principally to an increase in pension expense resulting from a decrease in discount rates.
  • GAAP earnings before interest and taxes increased $48.0 million to $301.9 million. Earnings increases of $60.4 million in the Tommy Hilfiger business and a reduction in corporate expenses of $13.5 million were due to the above-mentioned items, combined with lower integration, restructuring and debt modification costs. These increases were partially offset by decreases of $22.7 million and $3.1 million in the Heritage Brands and Calvin Klein businesses, respectively, due principally to the above-mentioned items.
  • On a non-GAAP basis, the effective tax rate was 25.6% as compared to 33.9% in the prior year. The GAAP effective tax rate was 26.0% as compared to 34.3% for the prior year. The Company’s 2012 tax rates were positively impacted by a greater portion of the Company’s earnings being generated by the Company’s international Tommy Hilfiger business, a significant portion of which is subject to favorable tax rates, as well as the continuation of the tax synergies resulting from the Tommy Hilfiger acquisition.

Balance Sheet:

The Company ended the quarter with a net debt position of $1.594 billion, comprised of $1.856 billion of debt, net of $262.0 million of cash. During the second quarter, the Company made payments totaling $59.4 million on its outstanding term loans, for total term loan payments of approximately $90 million during the first half of 2012 and approximately $790 million since the date of the Tommy Hilfiger acquisition, the majority of which were voluntary and ahead of schedule. The Company plans to make term loan payments of approximately $210 million during the remainder of 2012.

Ending inventories were flat as compared to the prior year’s second quarter. The Company remains very comfortable with the quality of its inventory.

2012 Guidance:

Please see the section entitled “Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

Full Year Guidance
Revenue in 2012 is currently projected to increase 1% to 2% as compared to $5.891 billion in 2011. On a constant currency basis and excluding the impact of the exited businesses, 2012 revenue is projected to increase 5% to 6%. Foreign currency translation is expected to have a negative revenue impact of approximately $150 million, while the exit from the Izod women’s and Timberland wholesale sportswear businesses is expected to reduce revenue by approximately $100 million, for a total decrease in revenue of approximately 4% related to these items.

Revenue for the Tommy Hilfiger business is expected to increase 2% to 3% as compared to $3.051 billion in 2011, including a negative foreign currency translation impact of approximately 5%. Revenue for the Calvin Klein business is expected to grow 6% to 7% as compared to $1.065 billion in 2011. Calvin Klein royalty revenue is expected to be negatively impacted by foreign currency translation, the upcoming reacquisition of the ck Calvin Klein European apparel and accessories licenses and the ongoing challenging business for the jeans and underwear product categories in Europe and the U.S. Revenue for the Heritage Brands business is expected to decrease 4% to 5% as compared to $1.775 billion in 2011, due to a 6% negative impact related to the previously mentioned exited sportswear businesses.

On a non-GAAP basis, earnings per share in 2012 is currently projected to be in the range of $6.25 to $6.32, an increase of 16% to 17% over the 2011 amount of $5.38. This estimate includes a negative impact of approximately $0.25 per share due to projected foreign currency translation and higher pension expense of approximately $0.15 per share, due in large part to a decrease in discount rates. Anticipated debt payments of approximately $300 million for the full year 2012, combined with the effect of debt payments made during 2011, are expected to result in a decrease to net interest expense of approximately $0.12 per share as compared to 2011. The Company continues to estimate that the 2012 effective tax rate will be 23.5% to 24.0%.

Third Quarter Guidance
Third quarter revenue in 2012 is currently projected to decrease 2% to 3% as compared to the prior year’s third quarter amount of $1.654 billion. On a constant currency basis and excluding the impact of the exited businesses, third quarter revenue in 2012 is projected to increase approximately 3% to 4%. Foreign currency translation is expected to have a negative revenue impact of approximately $55 million, while the exit from the Izod women’s and Timberland wholesale sportswear businesses is expected to reduce revenue by approximately $50 million, for a total decrease in revenue of approximately 6% related to these items.

Revenue for the Tommy Hilfiger business is expected to decrease 2% to 3% as compared to the third quarter of 2011, including a 6% negative impact due to projected foreign currency translation. Revenue for the Calvin Klein business is expected to grow approximately 4% as compared to the third quarter of 2011. Revenue for the Heritage Brands business is expected to decrease 5% to 6% as compared to the third quarter of 2011, due primarily to a 10% negative impact related to the exited sportswear businesses.

On a non-GAAP basis, earnings per share for the third quarter is currently projected to be in the range of $2.20 to $2.25, an increase of 16% to 19% over $1.89 in the prior year’s third quarter, which includes negative impacts related to projected foreign currency translation of approximately $0.10 per share and an increase in pension expense of approximately $0.04 per share, partially offset by a decline in overall advertising expense of approximately $0.10 per share. The Company currently estimates that the third quarter 2012 effective tax rate will be 23.0% to 23.5%.

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “Our better than expected second quarter results reflect the continued momentum and ongoing operating efficiencies across our business model. The exceptional performance of Tommy Hilfiger allowed us to exceed our earnings expectations, despite the cost pressures and the economic uncertainty that have impacted the global marketplace. The strength of the Tommy Hilfiger brand was epitomized by the brand’s performance in Europe despite the ongoing economic headwinds in that region. In addition, Calvin Klein continued to post solid revenue increases in the quarter despite the soft performance of the global jeans and underwear businesses. Excluding the planned shift of advertising expenditures into the quarter, Calvin Klein would have generated improved operating performance over last year.”

Mr. Chirico added, “We have raised our full year earnings guidance based on our better than expected second quarter performance, the positive impact from lower product costs beginning with Fall deliveries and our belief that the strength of our brands will continue to drive revenue and profitability increases throughout the remainder of 2012.”

Mr. Chirico continued, “We look forward to the growth opportunities that are in progress for our global designer brands, Calvin Klein and Tommy Hilfiger, as we continue to expand into new product categories and geographic markets. We are refining our strategy and business plans for bringing the Tommy Hilfiger European men’s tailored apparel and ck Calvin Klein European apparel and accessories businesses in house in 2013. We have been successful in expanding the market share, penetration and global reach of our brands, despite the macroeconomic headwinds, and believe we can continue to grow our businesses profitably in the future by identifying and executing additional strategic opportunities for all of our brands.”

Mr. Chirico concluded, “As we head into the second half of the year, we remain firm in our belief that the sound execution of our business strategies, investment in our world-class brands and concentration on our strong balance sheet will continue to drive long-term growth and will position us to deliver strong earnings results in 2012 and beyond.”

Non-GAAP Exclusions:

The discussions in this release that refer to non-GAAP amounts exclude the following:

  • Pre-tax costs of $69.5 million incurred in 2011 in connection with the integration of Tommy Hilfiger and the related restructuring, of which $30.5 million was incurred in the first quarter, $11.2 million was incurred in the second quarter, $9.3 million was incurred in the third quarter, and $18.6 million was incurred in the fourth quarter.
  • Pre-tax costs of $16.2 million incurred in the first quarter of 2011 in connection with the amendment and restatement of the Company’s credit facility.
  • Pre-tax costs of $8.1 million incurred in 2011 in connection with the Company’s negotiated early termination of its license to market sportswear under the Timberland brand and the Company’s 2012 exit from the Izod women’s wholesale sportswear business, of which $6.7 million was incurred in the second quarter, $0.5 million was incurred in the third quarter and $1.0 million was incurred in the fourth quarter.
  • A pre-tax expense of $20.7 million incurred in the third quarter of 2011 in connection with the Company’s reacquisition of the rights in India to the Tommy Hilfiger trademarks that had been subject to a perpetual license, as under accounting rules, the Company was required to record an expense due to settling the preexisting license agreement, which was unfavorable to the Company.
  • A tax benefit of $5.4 million recorded in the fourth quarter of 2011 resulting from revaluing certain deferred tax liabilities in connection with a decrease in the statutory tax rate in Japan.
  • Pre-tax costs of approximately $15 million expected to be incurred in 2012 principally in connection with the integration of Tommy Hilfiger and the related restructuring, of which $3.3 million was incurred in the first quarter, $4.5 million was incurred in the second quarter and approximately $5 million is expected to be incurred in the third quarter.
  • Estimated tax effects associated with the above pre-tax costs, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded as an acquisition, integration, restructuring or debt modification cost to determine if such cost is tax deductible, and if so, in what jurisdiction the deduction would occur. All items above were identified as either primarily tax deductible in the United States, in which case the Company assumed a combined federal and state tax rate of 38.0%, or as non-deductible, in which case the Company assumed no tax benefit.

Please see Tables 1 through 5 and the section entitled “Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.

The Company’s conference call to review its second quarter earnings release is scheduled for Tuesday, August 28, 2012 at 9:00 a.m. EDT. Please log on either to the Company’s web site at www.pvh.com and go to the Press Releases page under the Investors tab or to www.companyboardroom.com to listen to the live webcast of the conference call. The webcast will be available for replay for one year after it is held, commencing approximately two hours after the live broadcast ends. Please log on to www.pvh.com or www.companyboardroom.com as described above to listen to the replay. In addition, an audio replay of the conference call is available for 48 hours starting approximately two hours after it is held. The replay of the conference call can be accessed by calling (domestic) 888-203-1112 and (international) 719-457-0820 and using passcode #7944267. The conference call and webcast consist of copyrighted material. They may not be re-recorded, reproduced, re-transmitted, rebroadcast or otherwise used without the Company’s express written permission. Your participation represents your consent to these terms and conditions, which are governed by New York law.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this press release and made during the conference call/webcast, including, without limitation, statements relating to the Company’s future revenue and earnings, plans, strategies, objectives, expectations and intentions, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not be anticipated, including, without limitation, the following: (i) the Company’s plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) in connection with the acquisition of Tommy Hilfiger B.V. and certain affiliated companies, the Company borrowed significant amounts, may be considered to be highly leveraged, and uses a significant portion of its cash flows to service such indebtedness, as a result of which the Company might not have sufficient funds to operate its businesses in the manner it intends or has operated in the past; (iii) the levels of sales of the Company’s apparel, footwear and related products, both to its wholesale customers and in its retail stores, the levels of sales of the Company’s licensees at wholesale and retail, and the extent of discounts and promotional pricing in which the Company and its licensees and other business partners are required to engage, all of which can be affected by weather conditions, changes in the economy, fuel prices, reductions in travel, fashion trends, consolidations, repositionings and bankruptcies in the retail industries, repositionings of brands by the Company’s licensors and other factors; (iv) the Company’s plans and results of operations will be affected by the Company’s ability to manage its growth and inventory; (v) the Company’s operations and results could be affected by quota restrictions and the imposition of safeguard controls (which, among other things, could limit the Company’s ability to produce products in cost-effective countries that have the labor and technical expertise needed), the availability and cost of raw materials, the Company’s ability to adjust timely to changes in trade regulations and the migration and development of manufacturers (which can affect where the Company’s products can best be produced), changes in available factory and shipping capacity, wage and shipping cost escalation, and civil conflict, war or terrorist acts, the threat of any of the foregoing, or political and labor instability in any of the countries where the Company’s or its licensees’ or other business partners’ products are sold, produced or are planned to be sold or produced; (vi) disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas, as well as reduced consumer traffic and purchasing, as consumers become ill or limit or cease shopping in order to avoid exposure; (vii) acquisitions and issues arising with acquisitions and proposed transactions, including, without limitation, the ability to integrate an acquired entity into the Company with no substantial adverse affect on the acquired entity’s or the Company’s existing operations, employee relationships, vendor relationships, customer relationships or financial performance; (viii) the failure of the Company’s licensees to market successfully licensed products or to preserve the value of the Company’s brands, or their misuse of the Company’s brands; and (ix) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

This press release includes, and the conference call/webcast will include, certain non-GAAP financial measures, as defined under SEC rules. A reconciliation of these measures is included in the financial information later in this release, as well as in the Company’s Current Report on Form 8-K furnished to the SEC in connection with this earnings release, which is available on the Company’s website at www.pvh.com and on the SEC’s website at www.sec.gov.

The Company does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings, whether as a result of the receipt of new information, future events or otherwise.

 

PVH CORP.

Consolidated GAAP Income Statements

(In thousands, except per share data)

           
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
Net sales $ 1,219,620 $ 1,227,730 $ 2,532,469 $ 2,484,716
Royalty revenue 82,513 77,019 167,973 159,011
Advertising and other revenue 34,490   29,695   63,587   59,901
Total revenue $ 1,336,623   $ 1,334,444   $ 2,764,029   $ 2,703,628
 
Gross profit on net sales $ 625,658 $ 617,418 $ 1,267,930 $ 1,233,799
Gross profit on royalty, advertising and other revenue 117,003   106,714   231,560   218,912
Total gross profit 742,661 724,132 1,499,490 1,452,711
 
Selling, general and administrative expenses 592,929 590,653 1,199,434 1,182,555
 
Debt modification costs 16,233
 
Equity in (loss) income of unconsolidated affiliates (74 )   1,850    
 
Earnings before interest and taxes 149,658 133,479 301,906 253,923
 
Interest expense, net 28,355   31,446   57,599   64,516
 
Pre-tax income 121,303 102,033 244,307 189,407
 
Income tax expense 33,601   35,304   63,491   65,011
 
Net income $ 87,702   $ 66,729   $ 180,816   $ 124,396
 
Diluted net income per common share(1) $ 1.19 $ 0.92 $ 2.46 $ 1.71
 
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
Depreciation and amortization expense $ 34,333 $ 31,966 $ 67,792 $ 66,447
 

Please see following pages for information related to non-GAAP measures discussed in this release.

(1)

  Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of diluted net income per common share.

PVH CORP.
Non-GAAP Measures
(In thousands, except per share data)

The Company believes presenting its results excluding (i) the costs incurred in 2012 and 2011 in connection with its integration of Tommy Hilfiger and the related restructuring; (ii) the costs incurred in 2011 in connection with the modification of its credit facility; (iii) the costs incurred in 2011 in connection with the negotiated early termination of its license to market sportswear under the Timberland brand; and (iv) the tax effects associated with these costs, which are on a non-GAAP basis for each year, provides useful additional information to investors. The Company believes that the exclusion of such amounts facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company. The Company believes that investors often look at ongoing operations of an enterprise as a measure of assessing performance. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The Company also excludes these costs in connection with certain incentive compensation calculations.

The following table presents the Company’s GAAP revenue and the non-GAAP measures that are discussed in this release. Please see Tables 1 through 5 for reconciliations of the GAAP amounts to non-GAAP amounts.

           
  Quarter Ended Six Months Ended
7/29/12 7/31/11 7/29/12 7/31/11
 
GAAP total revenue $ 1,336,623   $ 1,334,444   $ 2,764,029   $ 2,703,628
 
Non-GAAP Measures
Total gross profit(1) $ 726,285 $ 1,454,864
Selling, general and administrative expenses(2) $ 588,388 574,930 $ 1,191,577 1,136,373
Earnings before interest and taxes(3) 154,199 151,355 309,763 318,491
Income tax expense(4) 33,852 41,609 64,674 86,119
Net income(5) 91,992 78,300 187,490 167,856
Diluted net income per common share(6)   $ 1.25     $ 1.07   $ 2.55     $ 2.31
 

(1)

 

Please see Table 3 for reconciliation of GAAP to non-GAAP gross profit.

(2)

Please see Table 4 for reconciliation of GAAP to non-GAAP selling, general and administrative expenses (“SG&A”).

(3)

Please see Table 2 for reconciliation of GAAP earnings before interest and taxes to non-GAAP earnings before interest and taxes.

(4)

Please see Table 5 for reconciliation of GAAP income tax expense to non-GAAP income tax expense and an explanation of the calculation of the tax effects associated with integration, restructuring and debt modification costs.

(5)

Please see Table 1 for reconciliation of GAAP net income to non-GAAP net income.

(6)

Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of diluted net income per common share.

 

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts

(In thousands, except per share data)

 

Table 1 - Reconciliation of GAAP net income to non-GAAP net income

           
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
Net income $ 87,702 $ 66,729 $ 180,816 $ 124,396
 
Diluted net income per common share(1) $ 1.19 $ 0.92 $ 2.46 $ 1.71
 
Items excluded:
 

Inventory liquidation costs associated with exit of certain
Tommy Hilfiger product categories (gross margin)

2,153 2,153
 

SG&A expenses associated with Tommy Hilfiger integration
and related restructuring

4,541 9,073 7,857 39,532
 

SG&A expenses associated with negotiated termination of
license to market Timberland sportswear

6,650 6,650
 
Debt modification costs 16,233
 
Tax effect of the items above(2) (251 ) (6,305 ) (1,183 ) (21,108 )
 
Non-GAAP net income $ 91,992 $ 78,300 $ 187,490 $ 167,856
 
Non-GAAP diluted net income per common share(1)   $ 1.25     $ 1.07       $ 2.55     $ 2.31  

 

(1)

  Please see Note A in the Notes to the Consolidated GAAP Income Statements for reconciliations of diluted net income per common share.

(2)

Please see Table 5 for an explanation of the calculation of the tax effects of the above items.
Table 2 - Reconciliation of GAAP earnings before interest and taxes to non-GAAP earnings before interest and taxes
           
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
Earnings before interest and taxes $ 149,658 $ 133,479 $ 301,906 $ 253,923
 
Items excluded:
 

Inventory liquidation costs associated with exit of certain
Tommy Hilfiger product categories (gross margin)

2,153 2,153
 

SG&A expenses associated with Tommy Hilfiger integration
and related restructuring

4,541 9,073 7,857 39,532
 

SG&A expenses associated with negotiated termination of
license to market Timberland sportswear

6,650 6,650
 
Debt modification costs       16,233
 
Non-GAAP earnings before interest and taxes $ 154,199 $ 151,355 $ 309,763 $ 318,491
 
 

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)

 

Table 3 - Reconciliation of GAAP gross profit to non-GAAP gross profit

     
Quarter Ended Six Months Ended

7/31/11

7/31/11

 
Gross profit $ 724,132 $ 1,452,711
 
Items excluded:
 

Inventory liquidation costs associated with exit of certain Tommy
Hilfiger product categories

2,153   2,153
 
Non-GAAP gross profit $ 726,285 $ 1,454,864
 

Table 4 - Reconciliation of GAAP SG&A to non-GAAP SG&A

           
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
SG&A $ 592,929 $ 590,653 $ 1,199,434 $ 1,182,555
 
Items excluded:
 

SG&A expenses associated with Tommy Hilfiger integration
and related restructuring

(4,541 ) (9,073 ) (7,857 ) (39,532 )
 

SG&A expenses associated with negotiated termination of
license to market Timberland sportswear

  (6,650 )   (6,650 )
 
Non-GAAP SG&A $ 588,388 $ 574,930 $ 1,191,577 $ 1,136,373
 

PVH CORP. Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)

Table 5 - Reconciliation of GAAP income tax expense to non-GAAP income tax expense

           
Quarter Ended Six Months Ended

7/29/12

7/31/11

7/29/12

7/31/11

 
Income tax expense $ 33,601 $ 35,304 $ 63,491 $ 65,011
 
Items excluded:
 

Income tax effect of integration, restructuring and debt
modification costs (1)

251   6,305   1,183   21,108
 
Non-GAAP income tax expense $ 33,852 $ 41,609 $ 64,674 $ 86,119
 

 

(1)   The estimated tax effects of the Company’s integration, restructuring and debt modification costs are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded as an integration, restructuring and debt modification cost to determine if such cost is tax deductible, and if so, in what jurisdiction the deduction would occur. All of the Company’s integration, restructuring and debt modification costs were identified as either primarily tax deductible in the United States, in which case the Company assumed a combined federal and state tax rate of 38.0%, or as non-deductible, in which case the Company assumed no tax benefit.
 
PVH CORP.
Notes to Consolidated GAAP Income Statements
(In thousands, except per share data)
 
A. The Company computed its diluted net income per common share as follows:
         
Quarter Ended Quarter Ended

7/29/12

7/31/11

GAAP     Non-GAAP GAAP   Non-GAAP

Results

Adjustments

Results

Results

Adjustments

Results

 
Net income $ 87,702 $ (4,290 ) (1) $ 91,992 $ 66,729 $ (11,571 ) (2) $ 78,300
 
Weighted average common shares 70,403 70,403 67,129

 

67,129

Weighted average dilutive securities 1,105 1,105 1,551

 

1,551

Weighted average impact of assumed
convertible preferred stock conversion

2,095   2,095   4,189  

 

4,189

Total shares 73,603   73,603   72,869  

 

72,869

 
Diluted net income per common share $ 1.19   $ 1.25   $ 0.92   $ 1.07
 
Six Months Ended Six Months Ended
7/29/12 7/31/11
GAAP Non-GAAP GAAP Non-GAAP

Results

Adjustments

Results

Results

Adjustments

Results

 
Net income $ 180,816 $ (6,674 ) (1) $ 187,490 $ 124,396 $ (43,460 ) (2)

$

167,856

 
Weighted average common shares 69,471 69,471 66,964

 

66,964

Weighted average dilutive securities 1,346 1,346 1,578

 

1,578

Weighted average impact of assumed
convertible preferred stock conversion

2,785   2,785   4,189  

 

4,189

Total shares 73,602   73,602   72,731  

 

72,731

 
Diluted net income per common share $ 2.46   $ 2.55   $ 1.71  

$

2.31

(1)   Represents the impact on net income in the period ended July 29, 2012 from the elimination of (i) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; and (ii) the tax effects associated with these costs. Please see Table 1 for a reconciliation of GAAP net income to non-GAAP net income.
(2)

Represents the impact on net income in the period ended July 31, 2011 from the elimination of (i) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and related restructuring; (ii) the costs incurred in connection with the Company’s modification of its credit facility; (iii) the costs incurred in connection with the Company’s negotiated early termination of its license to market sportswear under the Timberland brand; and (iv) the tax effects associated with these costs. Please see Table 1 for a reconciliation of GAAP net income to non-GAAP net income.

   

PVH CORP.

Consolidated Balance Sheets

(In thousands)

July 29, July 31,
2012 2011
ASSETS
Current Assets:
Cash and Cash Equivalents $ 261,986 $ 287,691
Receivables 425,665 413,846
Inventories 909,447 912,988
Other Current Assets 222,840   168,714
Total Current Assets 1,819,938 1,783,239
Property, Plant and Equipment 484,443 426,367
Goodwill and Other Intangible Assets 4,261,467 4,569,737
Other Assets 165,640   140,786
$ 6,731,488   $ 6,920,129
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts Payable and Accrued Expenses $ 968,581 $ 942,908
Short-Term Borrowings 52,791 13,006
Current Portion of Long-Term Debt 88,021 51,816
Other Liabilities 1,125,431 1,111,132
Long-Term Debt 1,715,464 2,090,062
Stockholders’ Equity 2,781,200   2,711,205
$ 6,731,488   $ 6,920,129
 
       
PVH CORP.
Segment Data
(In thousands)
 

REVENUE BY SEGMENT

Quarter Ended Quarter Ended
  7/29/12     7/31/11

Heritage Brand Wholesale Dress Furnishings

Net sales $ 105,567 $ 123,771
Royalty revenue 1,315 1,468
Advertising and other revenue 830   414
Total 107,712 125,653
 

Heritage Brand Wholesale Sportswear

Net sales 77,933 96,107
Royalty revenue 2,544 2,707
Advertising and other revenue 359   475
Total 80,836 99,289
 

Heritage Brand Retail

Net sales 173,473 175,212
Royalty revenue 1,229 1,239
Advertising and other revenue 236   277
Total 174,938 176,728
             

Total Heritage Brands

Net sales 356,973 395,090
Royalty revenue 5,088 5,414
Advertising and other revenue 1,425   1,166
Total   363,486         401,670
 

Other (Calvin Klein Apparel)

Net sales 153,691   148,911
Total 153,691 148,911
 

Calvin Klein Licensing

Net sales 8,979 7,993
Royalty revenue 59,246 57,555
Advertising and other revenue 29,315   25,441
Total 97,540 90,989
             

Total Calvin Klein

Net sales 162,670 156,904
Royalty revenue 59,246 57,555
Advertising and other revenue 29,315   25,441
Total   251,231         239,900
 

Tommy Hilfiger North America

Net sales 324,482 293,760
Royalty revenue 5,101 4,260
Advertising and other revenue 2,285   2,005
Total 331,868 300,025
 

Tommy Hilfiger International

Net sales 375,495 381,976
Royalty revenue 13,078 9,790
Advertising and other revenue 1,465   1,083
Total 390,038 392,849
             

Total Tommy Hilfiger

Net sales 699,977 675,736
Royalty revenue 18,179 14,050
Advertising and other revenue 3,750   3,088
Total   721,906         692,874
 

Total Revenue

Net sales 1,219,620 1,227,730
Royalty revenue 82,513 77,019
Advertising and other revenue 34,490   29,695
Total $ 1,336,623   $ 1,334,444
 
             
PVH CORP.
Segment Data (continued)
(In thousands)
 

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT

 
Quarter Ended Quarter Ended
  7/29/12 7/31/11
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments(1) Results GAAP(3) Adjustments(2) Results(3)
 
Heritage Brand Wholesale Dress Furnishings $ 9,640 $ 9,640 $ 14,284 $ 14,284
 
Heritage Brand Wholesale Sportswear 4,203 4,203 (5,204 ) $ (6,650 ) 1,446
 
Heritage Brand Retail 9,358     9,358   15,188     15,188  
                             
Total Heritage Brands   23,201         23,201         24,268     (6,650 )   30,918  
 
Other (Calvin Klein Apparel) 14,913 14,913 22,114 22,114
 
Calvin Klein Licensing 45,314     45,314   43,941     43,941  
                             
Total Calvin Klein   60,227         60,227         66,055         66,055  
 
Tommy Hilfiger North America 52,693 52,693 31,426 (6,651 ) 38,077
 
Tommy Hilfiger International 41,113   $ (3,497 ) 44,610   37,673     37,673  
                             
Total Tommy Hilfiger   93,806     (3,497 )   97,303         69,099     (6,651 )   75,750  
 
Corporate (27,576 ) (1,044 ) (26,532 ) (25,943 ) (4,575 ) (21,368 )
 
Total earnings before interest and taxes $ 149,658   $ (4,541 ) $ 154,199   $ 133,479   $ (17,876 ) $ 151,355  
 

(1)

 

Adjustments for the quarter ended July 29, 2012 represent the elimination of the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring.

 

(2)

Adjustments for the quarter ended July 31, 2011 represent the elimination of the costs incurred in connection with the Company’s (i) integration of Tommy Hilfiger and the related restructuring; and (ii) negotiated early termination of its license to market sportswear under the Timberland brand.

 

(3)

In the fourth quarter of 2011, the Company changed the way actuarial gains and losses from its defined benefit pension plans are allocated to its reportable segments. Actuarial gains and losses are now included as part of corporate expenses and are not allocated to any reportable segment. Prior periods have been restated in order to present that information on a basis consistent with the current year.

       
PVH CORP.
Segment Data (continued)
(In thousands)
 

REVENUE BY SEGMENT

Six Months Ended Six Months Ended
7/29/12   7/31/11

Heritage Brand Wholesale Dress Furnishings

Net sales $ 225,453 $ 258,460
Royalty revenue 2,832 2,953
Advertising and other revenue 1,537   818
Total 229,822 262,231
 

Heritage Brand Wholesale Sportswear

Net sales 212,165 231,561
Royalty revenue 5,007 5,148
Advertising and other revenue 820   881
Total 217,992 237,590
 

Heritage Brand Retail

Net sales 307,655 306,889
Royalty revenue 2,432 2,537
Advertising and other revenue 507   518
Total 310,594 309,944
             

Total Heritage Brands

Net sales 745,273 796,910
Royalty revenue 10,271 10,638
Advertising and other revenue 2,864   2,217
Total   758,408         809,765
 

Other (Calvin Klein Apparel)

Net sales 317,166   295,342
Total 317,166 295,342
 

Calvin Klein Licensing

Net sales 17,223 15,435
Royalty revenue 124,719 122,439
Advertising and other revenue 54,242   52,330
Total 196,184 190,204
             

Total Calvin Klein

Net sales 334,389 310,777
Royalty revenue 124,719 122,439
Advertising and other revenue 54,242   52,330
Total   513,350         485,546
 

Tommy Hilfiger North America

Net sales 623,462 561,397
Royalty revenue 9,625 7,121
Advertising and other revenue 3,972   3,291
Total 637,059 571,809
 

Tommy Hilfiger International

Net sales 829,345 815,632
Royalty revenue 23,358 18,813
Advertising and other revenue 2,509   2,063
Total 855,212 836,508
             

Total Tommy Hilfiger

Net sales 1,452,807 1,377,029
Royalty revenue 32,983 25,934
Advertising and other revenue 6,481   5,354
Total   1,492,271         1,408,317
 

Total Revenue

Net sales 2,532,469 2,484,716
Royalty revenue 167,973 159,011
Advertising and other revenue 63,587   59,901
Total $ 2,764,029   $ 2,703,628
 
               
PVH CORP.
Segment Data (continued)
(In thousands)
 

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT

 
Six Months Ended Six Months Ended
  7/29/12 7/31/11
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments(1) Results GAAP(3) Adjustments(2) Results(3)
 
Heritage Brand Wholesale Dress Furnishings $ 18,556 $ 18,556 $ 34,935 $ 34,935
 
Heritage Brand Wholesale Sportswear 15,573 15,573 9,067 $ (6,650 ) 15,717
 
Heritage Brand Retail 6,814     6,814   19,689     19,689  
                             
Total Heritage Brands   40,943         40,943         63,691     (6,650 )   70,341  
 
Other (Calvin Klein Apparel) 32,511 32,511 43,057 43,057
 
Calvin Klein Licensing 86,058     86,058   78,591     78,591  
                             
Total Calvin Klein   118,569         118,569         121,648         121,648  
 
Tommy Hilfiger North America 81,627 $ (379 ) 82,006 19,215 (30,142 ) 49,357
 
Tommy Hilfiger International 114,593   (3,497 ) 118,090   116,655   (448 ) 117,103  
                             
Total Tommy Hilfiger   196,220     (3,876 )   200,096         135,870     (30,590 )   166,460  
 
Corporate (53,826 ) (3,981 ) (49,845 ) (67,286 ) (27,328 ) (39,958 )
 
Total earnings before interest and taxes $ 301,906   $ (7,857 ) $ 309,763   $ 253,923   $ (64,568 ) $ 318,491  
 

(1)

 

Adjustments for the period ended July 29, 2012 represent the elimination of the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring.

 

(2)

Adjustments for the period ended July 31, 2011 represent the elimination of the costs incurred in connection with the Company’s (i) integration of Tommy Hilfiger and the related restructuring; (ii) modification of its credit facility; and (iii) negotiated early termination of its license to market sportswear under the Timberland brand.

 

(3)

In the fourth quarter of 2011 the Company changed the way actuarial gains and losses from its defined benefit pension plans are allocated to its reportable segments. Actuarial gains and losses are now included as part of corporate expenses not allocated to any reportable segments. Prior periods have been restated in order to present that information on a basis consistent with the current year.

PVH CORP.
Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts

The Company is presenting its (1) 2012 estimated results excluding (a) the costs expected to be incurred principally in connection with its integration of Tommy Hilfiger and the related restructuring; and (b) the estimated tax effects associated with these costs, and (2) 2011 results excluding (a) the costs incurred in connection with its integration of Tommy Hilfiger and the related restructuring; (b) the costs incurred in connection with the negotiated early termination of its license to market sportswear under the Timberland brand and the 2012 exit from its Izod women’s wholesale sportswear business; (c) the expense associated with settling the unfavorable preexisting license agreement in connection with its buyout of the Tommy Hilfiger perpetual license in India; (d) the costs incurred in connection with the modification of its credit facility; (e) the estimated tax effects associated with these costs; and (f) the tax benefit resulting from revaluing certain deferred tax liabilities in connection with a decrease in the statutory tax rate in Japan. Both the 2012 estimated results and 2011 results are on a non-GAAP basis. The Company believes presenting these results on a non-GAAP basis provides useful additional information to investors. The Company believes that the exclusion of the amounts identified facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company. The Company believes that investors often look at ongoing operations of an enterprise as a measure of assessing performance. The Company has provided the reconciliations set forth below to present its estimates on a GAAP basis and excluding these amounts. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The costs associated with the Company’s integration of Tommy Hilfiger and the related restructuring, the negotiated early termination of its Timberland license and the 2012 exit from the Izod women’s wholesale sportswear business, its buyout of the Tommy Hilfiger perpetual license in India and the modification of its credit facility are also excluded from earnings per share calculations for purposes of incentive compensation awards. The estimated tax effects associated with the above costs are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has recorded or expects to record as an integration, restructuring or debt modification cost to determine if such cost is tax deductible, and if so, in what jurisdiction the deduction would occur. All items above were identified as either primarily tax deductible in the United States, in which case the Company assumed a combined federal and state tax rate of 38.0%, or as non-deductible, in which case the Company assumed no tax benefit.

(Dollar amounts in millions, except per share data)

   

2012 Net Income Per Common Share Reconciliations

Full Year

2012

(Estimated)

Third Quarter

2012

(Estimated)

 
GAAP net income per common share $6.10 - $6.17 $2.15 - $2.20
Estimated per common share impact of after tax integration and restructuring costs $0.15 $0.05
Net income per common share excluding impact of integration and restructuring costs $6.25 - $6.32 $2.20 - $2.25
 

The GAAP net income per common share amounts presented in the above table are being provided solely to comply with applicable SEC rules and are not, and should not be construed to be, guidance for the Company’s 2012 fiscal year. The Company’s net income per common share, as well as the amounts excluded in providing non-GAAP earnings guidance, would be expected to change as a result of acquisition, restructuring, divestment or similar transactions or activities or other one-time events. The Company has no current understanding or agreement regarding any such transaction or definitive plans regarding any such activity.

PVH CORP.
Full Year and Third Quarter Reconciliations of GAAP to Non-GAAP Amounts (Continued)

Reconciliation of GAAP Diluted Net Income Per Common Share to Non-GAAP Diluted Net Income Per Common Share

   
Full Year 2011 Third Quarter 2011
(Actual) (Actual)

Results
Under
GAAP

  Adjustments    

Non-GAAP
Results

Results
Under
GAAP

  Adjustments    

Non-GAAP
Results

 
Net income $ 317.9 $ (74.3 ) (1) $ 392.2 $ 112.2 $ (26.0 ) (2) $ 138.2
Total weighted average shares 72.9   72.9   73.0   73.0
 
Diluted net income per common share $ 4.36   $ 5.38   $ 1.54   $ 1.89
 

(1)

 

Represents the impact on net income in the year ended January 29, 2012 from the elimination of (i) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; (ii) the costs incurred in connection with the Company’s negotiated early termination of its license to market sportswear under the Timberland brand and the 2012 exit from its Izod women’s wholesale sportswear business; (iii) the expense incurred associated with settling the unfavorable preexisting license agreement in connection with the Company’s buyout of the Tommy Hilfiger perpetual license in India; (iv) the costs incurred in connection with the modification of the Company’s credit facility; (v) the estimated tax effects associated with these costs; and (vi) the tax benefit resulting from revaluing certain deferred tax liabilities in connection with a decrease in the statutory tax rate in Japan.

 

(2)

Represents the impact on net income in the quarter ended October 30, 2011 from the elimination of (i) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; (ii) the costs incurred in connection with the Company’s negotiated early termination of its license to market sportswear under the Timberland brand; (iii) the expense incurred associated with settling the unfavorable preexisting license agreement in connection with the Company’s buyout of the Tommy Hilfiger perpetual license in India; and (iv) the tax effects associated with these costs.

Source: PVH Corp.

PVH Corp.
Dana Perlman
Treasurer and Senior Vice President, Business Development and Investor Relations
212-381-3502
investorrelations@pvh.com