UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 29, 2019
PVH CORP.
(Exact name of registrant as specified in its charter)
Delaware | 001-07572 | 13-1166910 | |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | |
200 Madison Avenue, New York, New York | 10016 | ||
(Address of principal executive offices) | (Zip Code) | ||
Registrant’s telephone number, including area code (212)-381-3500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $1.00 par value | PVH | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On May 29, 2019, PVH Corp. (the “Company”) issued a press release to report the Company’s earnings for the first quarter 2019, which is attached to this report as Exhibit 99.1.
The information in this Form 8-K and the Exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, regardless of any general incorporation language in such filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits.
Exhibit | Description |
99.1 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PVH CORP.
By: /s/ James W. Holmes
James W. Holmes
Senior Vice President and Controller
Date: May 29, 2019
PVH CORP.
200 MADISON AVENUE
NEW YORK, NY 10016
FOR IMMEDIATE RELEASE:
May 29, 2019
Contact: Dana Perlman
Treasurer, Senior Vice President, Business Development and Investor Relations
(212) 381-3502
investorrelations@pvh.com
PVH CORP. REPORTS 2019 FIRST QUARTER REVENUE AND EPS
• | First quarter revenue increased 2% (increased 6% on a constant currency basis) compared to the prior year period, in line with previous guidance |
• | First quarter EPS was: |
◦ | GAAP basis: $1.08 compared to guidance of $0.25 to $0.30, primarily due to a shift in the timing of restructuring costs |
◦ | Non-GAAP basis: $2.46 compared to guidance of $2.40 to $2.45 |
◦ | EPS included a negative impact of $0.15 per share related to foreign currency translation compared to guidance of $0.14 |
• | Full year 2019 EPS outlook: |
◦ | GAAP basis: $9.05 to $9.15 compared to $8.90 to $9.00 previously |
◦ | Non-GAAP basis: $10.20 to $10.30 compared to $10.30 to $10.40 previously |
◦ | EPS outlook includes an increased negative impact of $0.32 per share related to foreign currency translation, compared to $0.22 previously |
New York, New York - PVH Corp. [NYSE: PVH] reported its 2019 first quarter results.
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Non-GAAP Amounts:
Amounts stated to be on a non-GAAP basis exclude the items that are described below under the heading “Non-GAAP Exclusions.” Amounts stated on a constant currency basis are also deemed to be on a non-GAAP basis. Reconciliations of amounts on a GAAP basis to amounts on a non-GAAP basis are presented later in this release and identify and quantify all excluded items.
CEO Comments:
Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted,
“We are pleased with our first quarter 2019 results, as our earnings per share exceeded the high end of our guidance range. While the global retail environment was challenging, the power of our diversified business model and the strength of our brands, global platforms and teams drove our businesses forward.”
Mr. Chirico continued, “Looking ahead, the volatile and challenging macroeconomic backdrop has continued into the second quarter, with particular softness across the U.S. and China retail landscape. Additionally, further volatility in foreign exchange rates is expected to pressure our full year earnings per share by an incremental $0.10 compared to our prior expectations. As such, we believe it is prudent to factor this into our updated full year earnings outlook.”
Mr. Chirico concluded, “We remain confident that we are in a strong position to gain market share as we deliver against our strategic priorities. We are incredibly excited to strengthen our management team with the appointment of Stefan Larsson as President, who will help fuel our global growth. As we continue to invest in the strategic areas of the business that address the increasingly dynamic and ever-changing consumer landscape, while also taking a more nimble approach to react to emerging business trends, we see a significant opportunity to deliver long-term value for our stockholders.”
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First Quarter Business Review:
Tommy Hilfiger
Revenue in the Tommy Hilfiger business for the quarter increased 4% to $1.1 billion (increased 9% on a constant currency basis) compared to the prior year period. Tommy Hilfiger International revenue increased 4% to $680 million (increased 12% on a constant currency basis) compared to the prior year period, primarily driven by strong performance in Europe. International comparable store sales increased 9%. Tommy Hilfiger North America revenue increased 3% to $372 million (increased 3% on a constant currency basis) compared to the prior year period, driven by growth in the North America wholesale business, partially offset by a 4% decline in North America comparable store sales.
Earnings before interest and taxes on a GAAP basis for the quarter decreased to $92 million, inclusive of a $9 million negative impact due to foreign currency translation, from $132 million in the prior year period. Included in earnings before interest and taxes for the current quarter were costs of $55 million incurred in connection with the closure of the Company’s TOMMY HILFIGER flagship and anchor stores in the United States (the “TH U.S. store closures”), primarily consisting of noncash lease asset impairments. Included in earnings before interest and taxes for the prior year period were costs of $7 million related to the April 2016 acquisition of the 55% interest in the Company’s former Tommy Hilfiger joint venture in China that it did not already own (the “TH China acquisition”), consisting of noncash amortization of short-lived assets. Earnings before interest and taxes on a non-GAAP basis for these periods, as discussed below, exclude these amounts.
Earnings before interest and taxes on a non-GAAP basis for the quarter increased to $147 million, inclusive of a $9 million negative impact due to foreign currency translation, from $139 million in the prior year period. The earnings increase was principally due to strong performance in the international business.
Calvin Klein
Revenue in the Calvin Klein business for the quarter of $890 million was flat (increased 4% on a constant currency basis) compared to the prior year period. Calvin Klein International
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revenue decreased 2% to $466 million (increased 5% on a constant currency basis) compared to the prior year period, as solid growth in Europe was more than offset by the negative impacts of foreign currency translation and weakness in China. International comparable store sales decreased 4%. Calvin Klein North America revenue increased 2% to $424 million (increased 3% on a constant currency basis) compared to the prior year period, due to an increase in the wholesale business, partially offset by a 5% decline in North America comparable store sales.
Earnings before interest and taxes on a GAAP basis for the quarter decreased to $48 million, inclusive of a $5 million negative impact due to foreign currency translation, from $109 million in the prior year period. Included in earnings before interest and taxes for the current quarter were costs of $70 million in connection with the restructuring associated with the strategic changes for the Calvin Klein business announced in January 2019 (the “Calvin Klein restructuring”), consisting of a $30 million noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York, $19 million of severance, $15 million of contract termination and other costs, $5 million of other noncash asset impairments, and $2 million of inventory markdowns. Earnings before interest and taxes on a non-GAAP basis for the period, as discussed below, excludes these amounts.
Earnings before interest and taxes on a non-GAAP basis for the quarter increased to $119 million, inclusive of a $5 million negative impact due to foreign currency translation, from $109 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period). The earnings increase was principally due to lower expenses.
Heritage Brands
Revenue in the Heritage Brands business for the quarter increased 1% to $415 million compared to the prior year period, due to an increase in the wholesale business, partially offset by a 6% decline in comparable store sales.
Earnings before interest and taxes for the quarter decreased to $40 million from $42 million in the prior year period, principally due to gross margin pressure from a more promotional U.S. retail environment.
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First Quarter Consolidated Results:
First quarter revenue increased 2% to $2.4 billion (increased 6% on a constant currency basis) compared to the prior year period.
Earnings per share on a GAAP basis was $1.08 for the first quarter of 2019 compared to $2.29 in the prior year period. These results include the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release. Earnings per share on a non-GAAP basis for these periods, as discussed below, exclude these amounts.
Earnings per share on a non-GAAP basis was $2.46 for the first quarter of 2019 compared to $2.36 in the prior year period. Earnings per share on both a GAAP and non-GAAP basis for the first quarter of 2019 included a $0.15 negative impact related to foreign currency translation.
Earnings before interest and taxes on a GAAP basis for the quarter decreased to $135 million, inclusive of a $14 million negative impact due to foreign currency translation, from $244 million in the prior year period. Included in earnings before interest and taxes for the current quarter were $131 million of costs consisting of (i) $70 million related to the Calvin Klein restructuring, (ii) $55 million in connection with the TH U.S. store closures, and (iii) $6 million in connection with the refinancing of the Company’s senior credit facilities. Included in earnings before interest and taxes for the prior year period were costs of $7 million related to the TH China acquisition. Earnings before interest and taxes on a non-GAAP basis for these periods, as discussed below, exclude these amounts.
Earnings before interest and taxes on a non-GAAP basis for the quarter increased to $267 million, inclusive of a $14 million negative impact due to foreign currency translation, compared to $251 million in the prior year period. The improvement in earnings was principally driven by growth in the Tommy Hilfiger and Calvin Klein businesses.
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Net interest expense increased to $30 million from $28 million in the prior year period. The effective tax rate on a GAAP basis was 22.4% as compared to 17.1% in the prior year period. The effective tax rate on a non-GAAP basis was 21.4% as compared to 17.3% in the prior year period.
Stock Repurchase Program:
During the first quarter of 2019, the Company repurchased approximately 500,000 shares of its common stock for $61 million (9.5 million shares for $1.1 billion since inception) under the $2.0 billion stock repurchase program authorized by the Board of Directors through June 3, 2023. Stock repurchases under the program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as the Company deems appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, restrictions under the Company’s debt arrangements, trading restrictions under the Company’s insider trading policy and other relevant factors. The program may be modified by the Board, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice.
2019 Outlook:
The Company’s 2019 guidance assumes that two acquisitions will close in the second quarter of 2019. The first is the Company’s pending acquisition of the approximately 78% interest in Gazal Corporation Limited (“Gazal”) that it does not already own (the “Australia acquisition”). The Company and Gazal jointly own and manage a joint venture, PVH Brands Australia Pty. Limited ("PVH Australia"), which licenses and operates businesses under the “TOMMY HILFIGER,” “CALVIN KLEIN” and “Van Heusen” brands, along with other licensed and owned brands. PVH Australia will come under the Company’s full ownership as a result of the Australia acquisition. The second is the Company’s pending acquisition of the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from the Company’s current licensee in those markets (the “TH CSAP acquisition”). These pending acquisitions are expected to add approximately $150 million of revenue in 2019.
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The 2019 guidance incorporates the impact on certain of the Company’s products of tariffs imposed on nearly $200 billion of total goods imported from China into the U.S. (Tranches 1, 2 and 3) at 25%. However, the 2019 guidance does not contemplate any future increase in tariffs on additional goods imported from China into the U.S.
Please see the section entitled “Full Year and Quarterly 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
The Company currently projects that 2019 earnings per share on a GAAP basis will be in a range of $9.05 to $9.15 compared to $9.65 in 2018. The Company currently projects that 2019 earnings per share on a non-GAAP basis will be in a range of $10.20 to $10.30 compared to $9.60 in 2018. Both the GAAP and non-GAAP projections include the estimated negative impact of approximately $0.32 per share related to foreign currency translation.
Revenue in 2019 is projected to increase approximately 3% (increase approximately 5% on a constant currency basis) as compared to 2018. Revenue for the Tommy Hilfiger business is projected to increase approximately 6% (increase approximately 9% on a constant currency basis). Revenue for the Calvin Klein business is projected to be flat (increase approximately 2% on a constant currency basis). Revenue for the Heritage Brands business is projected to be flat.
Net interest expense in 2019 is projected to increase to approximately $120 million compared to $116 million in 2018. The Company estimates that the 2019 effective tax rate will be in a range of 14.5% to 15.5% on a GAAP basis and in a range of 14% to 15% on a non-GAAP basis.
The Company’s estimate of 2019 earnings per share on a non-GAAP basis excludes approximately $96 million of pre-tax net costs, consisting of (i) $105 million of pre-tax costs expected to be incurred in connection with the Calvin Klein restructuring, consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York, severance, contract termination and other costs,
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other noncash asset impairments, and inventory markdowns, (ii) $55 million of pre-tax costs incurred in connection with the TH U.S. store closures, primarily consisting of noncash lease asset impairments, (iii) $6 million of pre-tax costs incurred in connection with the refinancing of the Company’s senior credit facilities, (iv) an aggregate net pre-tax gain of $70 million expected to be recorded in connection with the Australia acquisition and the TH CSAP acquisition, consisting of a noncash gain to write up the Company's equity investments in Gazal and PVH Australia to fair value, partially offset by pre-tax costs related to both pending acquisitions, primarily consisting of noncash valuation adjustments and amortization of short-lived assets, and the resulting estimated tax effects of these pre-tax items.
Second Quarter Guidance
The Company currently projects that second quarter 2019 earnings per share on a GAAP basis will be in a range of $2.75 to $2.80 compared to $2.12 in the prior year period. The Company currently projects that second quarter 2019 earnings per share on a non-GAAP basis will be in a range of $1.85 to $1.90 compared to $2.18 in the prior year period. Both the GAAP and non-GAAP projections include an estimated negative impact of approximately $0.06 per share related to foreign currency translation.
Revenue in the second quarter of 2019 is projected to be flat (increase approximately 2% on a constant currency basis) compared to the prior year period. Revenue for the Tommy Hilfiger business in the second quarter is projected to increase approximately 3% (increase approximately 6% on a constant currency basis). Revenue for the Calvin Klein business in the second quarter is projected to decrease approximately 4% (decrease approximately 2% on a constant currency basis). Revenue for the Heritage Brands business in the second quarter is projected to decrease approximately 2%.
Net interest expense in the second quarter of 2019 is projected to decrease to approximately $28 million compared to $29 million in the prior year period. The Company estimates that the second quarter 2019 effective tax rate will be in a range of 21% to 22% on a GAAP basis and in a range of 21.5% to 22.5% on a non-GAAP basis.
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The Company’s estimate of second quarter 2019 earnings per share on a non-GAAP basis excludes a net pre-tax gain of approximately $85 million, consisting of (i) an aggregate net pre-tax gain of $105 million expected to be recorded in connection with the Australia acquisition and the TH CSAP acquisition, consisting of a noncash gain to write up the Company's equity investments in Gazal and PVH Australia to fair value, partially offset by pre-tax costs related to both pending acquisitions, primarily consisting of noncash valuation adjustments and amortization of short-lived assets and (ii) $20 million of pre-tax costs expected to be incurred in connection with the Calvin Klein restructuring, and the resulting estimated tax effects of these pre-tax costs.
Non-GAAP Exclusions:
The discussions in this release that refer to non-GAAP amounts exclude the following:
• | Pre-tax costs of approximately $105 million incurred and expected to be incurred in 2019 related to the Calvin Klein restructuring, consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York, other noncash asset impairments, severance, contract termination and other costs, and inventory markdowns, of which $70 million was incurred in the first quarter and $20 million is expected to be incurred in the second quarter. |
• | Pre-tax costs of $55 million incurred in the first quarter of 2019 in connection with the TH U.S. store closures, primarily consisting of noncash lease asset impairments. |
• | Pre-tax costs of $6 million incurred in the first quarter of 2019 in connection with the refinancing of the Company’s senior credit facilities. |
• | Aggregate net pre-tax gain of approximately $70 million expected to be recorded in 2019 in connection with the Australia acquisition and the TH CSAP acquisition, consisting of a noncash gain to write up the Company's equity investments in Gazal and PVH Australia to fair value, partially offset by pre-tax costs related to both pending acquisitions, primarily consisting of noncash valuation adjustments and amortization of short-lived assets, of which an aggregate net pre-tax gain of $105 million is expected to be recorded in the second quarter. |
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• | Pre-tax costs of $41 million incurred in the fourth quarter of 2018 related to the Calvin Klein restructuring, consisting of $27 million of severance, $7 million of noncash asset impairments, $4 million of contract termination and other costs, and $2 million of inventory markdowns. |
• | Pre-tax costs of $24 million incurred in 2018 related to the TH China acquisition, consisting of noncash amortization of short-lived assets, of which $7 million was incurred in the first quarter, $7 million was incurred in the second quarter, $6 million was incurred in the third quarter and $4 million was incurred in the fourth quarter. |
• | Pre-tax loss of $15 million recorded in the fourth quarter of 2018 related to the recognized actuarial loss on retirement plans. |
• | Discrete tax benefit of $41 million recorded in the fourth quarter of 2018 related to the remeasurement of certain of the Company’s net deferred tax liabilities in connection with the enactment of legislation in the Netherlands known as the “2019 Dutch Tax Plan.” |
• | Discrete net tax benefit of $25 million recorded in the fourth quarter of 2018 to adjust the provisional net tax benefit recorded in 2017 in connection with the U.S. Tax Cuts and Jobs Act of 2017, primarily consisting of the release of a valuation allowance on the Company’s foreign tax credits. |
• | Estimated tax effects associated with the above pre-tax items, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it had identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were identified as either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect. |
As a supplement to the Company’s GAAP results, the Company presents constant currency revenue information, which is a non-GAAP financial measure. The Company presents results in this manner because it is a global company that transacts business in multiple currencies but reports financial information in U.S. dollars. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign
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revenues. Exchange rate fluctuations can have a significant effect on reported revenues. The Company believes presenting constant currency revenue information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency exchange rates and assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.
The Company calculates constant currency revenue information by translating its foreign revenues for the current year period into U.S. dollars at the average exchange rates in effect during the comparable prior year period (rather than at the actual exchange rates in effect during the current year period).
Constant currency performance should be viewed in addition to, and not in lieu of or as superior to, the Company’s operating performance calculated in accordance with GAAP. The constant currency revenue information presented may not be comparable to similarly described measures reported by other companies.
Please see Tables 1 through 7 and the sections entitled “Reconciliations of 2019 Constant Currency Revenue” and “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.
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The Company webcasts its conference calls to review its earnings releases. The Company’s conference call to review its first quarter earnings release is scheduled for Thursday, May 30, 2019 at 9:00 a.m. EDT. Please log on to the Company’s web site at www.PVH.com and go to the Events page included in the Investors section 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 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 4611736. 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.
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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, (i) the Company’s plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the Company may be considered to be highly leveraged and uses a significant portion of its cash flows to service its 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 ability to manage its growth and inventory, including the Company’s ability to realize benefits from acquisitions, such as the pending acquisitions referenced in this press release; (v) quota restrictions, the imposition of safeguard controls and the imposition of duties or tariffs on goods from the countries where the Company or its licensees produce goods under its trademarks, such as the recently increased tariffs and threatened additional tariffs on goods imported into the U.S. from China, any of which, among other things, could limit the ability to produce products in cost-effective countries or in countries that have the labor and technical expertise needed, or require the Company to absorb costs or try to pass costs onto consumers, which could materially impact the Company’s revenue and profitability; (vi) the availability and cost of raw materials; (vii) 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); (viii) changes in available factory and shipping capacity, wage and shipping cost escalation, civil conflict, war or terrorist acts, the threat of any of the foregoing, or political or 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; (ix) 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; (x) acquisitions and divestitures and issues arising with acquisitions, divestitures and proposed transactions, including, without limitation, the ability to integrate an acquired entity or business into the Company with no substantial adverse effect on the acquired entity’s, the acquired business’s or the Company’s existing operations, employee relationships, vendor relationships, customer relationships or financial performance, and the ability to operate effectively and profitably the Company’s continuing businesses after the sale or other disposal of a subsidiary, business or the assets thereof; (xi) 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; (xii) significant fluctuations of the U.S. dollar against foreign currencies in which the Company transacts significant levels of business; (xiii) the Company’s retirement plan expenses recorded throughout the year are calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions, and differences between estimated and actual results give rise to gains and losses, which can be significant, that are recorded immediately in earnings, generally in the fourth quarter of the year; (xiv) the impact of new and revised tax legislation and regulations, particularly the U.S. Tax Cuts and Jobs Act of 2017 that might disproportionately affect the Company as compared to some of its peers due to the specific tax structure of the Company and its greater percentage of revenues and income generated outside of the U.S., and the legislation enacted in the Netherlands known as the “2019 Dutch Tax Plan”; and (xv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).
This press release includes, and the conference call/webcast will include, certain non-GAAP financial measures, as defined under SEC rules. Reconciliations of these measures are 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.
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PVH CORP.
Consolidated GAAP Income Statements
(In millions, except per share data)
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Net sales | $ | 2,237.3 | $ | 2,193.5 | ||||||
Royalty revenue | 89.4 | 89.4 | ||||||||
Advertising and other revenue | 29.6 | 31.7 | ||||||||
Total revenue | $ | 2,356.3 | $ | 2,314.6 | ||||||
Gross profit on net sales | $ | 1,176.9 | $ | 1,169.9 | ||||||
Gross profit on royalty, advertising and other revenue | 119.0 | 121.1 | ||||||||
Total gross profit | 1,295.9 | 1,291.0 | ||||||||
Selling, general and administrative expenses | 1,161.5 | 1,053.0 | ||||||||
Non-service related pension and postretirement income | (2.2 | ) | (2.5 | ) | ||||||
Debt modification and extinguishment costs | 5.2 | |||||||||
Equity in net income of unconsolidated affiliates | 3.7 | 3.8 | ||||||||
Earnings before interest and taxes | 135.1 | 244.3 | ||||||||
Interest expense, net | 29.9 | 28.4 | ||||||||
Pre-tax income | 105.2 | 215.9 | ||||||||
Income tax expense | 23.6 | 37.0 | ||||||||
Net income | 81.6 | 178.9 | ||||||||
Less: Net loss attributable to redeemable non-controlling interest (1) | (0.4 | ) | (0.5 | ) | ||||||
Net income attributable to PVH Corp. | $ | 82.0 | $ | 179.4 | ||||||
Diluted net income per common share attributable to PVH Corp. (2) | $ | 1.08 | $ | 2.29 | ||||||
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Depreciation and amortization expense | $ | 76.5 | $ | 83.2 | ||||||
Please see following pages for information related to non-GAAP measures discussed in this release.
(1) | The Company and Arvind Limited have a joint venture in Ethiopia in which the Company owns a 75% interest. |
(2) | Please see Note A in Notes to Consolidated GAAP Income Statements for the reconciliations of GAAP diluted net income per common share to diluted net income per common share on a non-GAAP basis. |
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PVH CORP.
Non-GAAP Measures
(In millions, except per share data)
The Company believes it is useful to investors to present its results for the quarters ended May 5, 2019 and May 6, 2018 on a non-GAAP basis by excluding (i) the costs incurred in the first quarter of 2019 related to the restructuring associated with the strategic changes for its Calvin Klein business announced in January 2019 (the “Calvin Klein restructuring”), consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York; other noncash asset impairments; severance; contract termination and other costs; and inventory markdowns; (ii) the costs incurred in the first quarter of 2019 in connection with the closure of the Company’s TOMMY HILFIGER flagship and anchor stores in the United States (the “TH U.S. store closures”), primarily consisting of noncash lease asset impairments; (iii) the costs incurred in the first quarter of 2019 in connection with the refinancing of the Company’s senior credit facilities; (iv) the costs incurred in the first quarter of 2018 related to the acquisition of the 55% interest in TH Asia, Ltd., its former joint venture for TOMMY HILFIGER in China, that it did not already own (the “TH China acquisition”), consisting of noncash amortization of short-lived assets; and (v) the tax effects associated with the foregoing pre-tax items. The Company excludes these amounts because it deems them to be non-recurring or non-operational and believes that their exclusion (i) 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, and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. 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’s results excluding the items described above are also the basis for certain incentive compensation calculations. The non-GAAP measures should be viewed in addition to, and not in lieu of or superior to, the Company’s operating performance measures calculated in accordance with GAAP. The information presented on a non-GAAP basis may not be comparable to similarly titled measures reported by other companies.
The following table presents the non-GAAP measures that are discussed in this release. Please see Tables 1 through 7 for the reconciliations of the GAAP amounts to amounts on a non-GAAP basis.
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Non-GAAP Measures | ||||||||||
Total gross profit (1) | $ | 1,297.6 | ||||||||
Selling, general and administrative expenses (2) | 1,037.0 | $ | 1,046.1 | |||||||
Debt modification and extinguishment costs (3) | — | |||||||||
Earnings before interest and taxes (4) | 266.5 | 251.2 | ||||||||
Income tax expense (5) | 50.6 | 38.5 | ||||||||
Net income attributable to PVH Corp. (6) | 186.4 | 184.8 | ||||||||
Diluted net income per common share attributable to PVH Corp. (7) | $ | 2.46 | $ | 2.36 | ||||||
Depreciation and amortization expense (8) | $ | 76.3 | ||||||||
(1) Please see Table 3 for the reconciliation of GAAP gross profit to gross profit on a non-GAAP basis. |
(2) Please see Table 4 for the reconciliations of GAAP selling, general and administrative (“SG&A”) expenses to SG&A expenses on a non-GAAP basis. |
(3) Please see Table 5 for the reconciliation of GAAP debt modification and extinguishment costs to debt modification and extinguishment costs on a non-GAAP basis. |
(4) Please see Table 2 for the reconciliations of GAAP earnings before interest and taxes to earnings before interest and taxes on a non-GAAP basis. |
(5) Please see Table 6 for the reconciliations of GAAP income tax expense to income tax expense on a non-GAAP basis and an explanation of the calculation of the tax effects associated with the pre-tax items identified as non-GAAP exclusions. |
(6) Please see Table 1 for the reconciliations of GAAP net income to net income on a non-GAAP basis. |
(7) Please see Note A in Notes to Consolidated GAAP Income Statements for the reconciliations of GAAP diluted net income per common share to diluted net income per common share on a non-GAAP basis. |
(8) Please see Table 7 for the reconciliation of GAAP depreciation and amortization expense to depreciation and amortization expense on a non-GAAP basis. |
15
PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts
(In millions, except per share data)
Table 1 - Reconciliations of GAAP net income to net income on a non-GAAP basis | ||||||||||
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Net income attributable to PVH Corp. | $ | 82.0 | $ | 179.4 | ||||||
Diluted net income per common share attributable to PVH Corp.(1) | $ | 1.08 | $ | 2.29 | ||||||
Pre-tax items excluded: | ||||||||||
Gross profit charges associated with the Calvin Klein restructuring (inventory markdowns) | 1.7 | |||||||||
SG&A expenses associated with the Calvin Klein restructuring | 68.6 | |||||||||
SG&A expenses associated with the TH U.S. store closures | 54.9 | |||||||||
SG&A expenses associated with the refinancing of the Company’s senior credit facilities | 1.0 | |||||||||
SG&A expenses associated with the TH China acquisition | 6.9 | |||||||||
Debt modification and extinguishment costs | 5.2 | |||||||||
Tax effects of the above pre-tax items(2) | (27.0 | ) | (1.5 | ) | ||||||
Net income on a non-GAAP basis attributable to PVH Corp. | $ | 186.4 | $ | 184.8 | ||||||
Diluted net income per common share on a non-GAAP basis attributable to PVH Corp.(1) | $ | 2.46 | $ | 2.36 | ||||||
(1) Please see Note A in Notes to the Consolidated GAAP Income Statements for the reconciliations of GAAP diluted net income per common share to diluted net income per common share on a non-GAAP basis. | ||||||||||
(2) Please see Table 6 for an explanation of the calculation of the tax effects of the above items. | ||||||||||
Table 2 - Reconciliations of GAAP earnings before interest and taxes to earnings before interest and taxes on a non-GAAP basis | ||||||||||
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Earnings before interest and taxes | $ | 135.1 | $ | 244.3 | ||||||
Items excluded: | ||||||||||
Gross profit charges associated with the Calvin Klein restructuring (inventory markdowns) | 1.7 | |||||||||
SG&A expenses associated with the Calvin Klein restructuring | 68.6 | |||||||||
SG&A expenses associated with the TH U.S. store closures | 54.9 | |||||||||
SG&A expenses associated with the refinancing of the Company’s senior credit facilities | 1.0 | |||||||||
SG&A expenses associated with the TH China acquisition | 6.9 | |||||||||
Debt modification and extinguishment costs | 5.2 | |||||||||
Earnings before interest and taxes on a non-GAAP basis | $ | 266.5 | $ | 251.2 | ||||||
16
PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts (continued)
(In millions)
Table 3 - Reconciliation of GAAP gross profit to gross profit on a non-GAAP basis | ||||||
Quarter Ended | ||||||
5/5/19 | ||||||
Gross profit | $ | 1,295.9 | ||||
Item excluded: | ||||||
Gross profit charges associated with the Calvin Klein restructuring (inventory markdowns) | 1.7 | |||||
Gross profit on a non-GAAP basis | $ | 1,297.6 | ||||
Table 4 - Reconciliations of GAAP SG&A expenses to SG&A expenses on a non-GAAP basis | ||||||||||
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
SG&A expenses | $ | 1,161.5 | $ | 1,053.0 | ||||||
Items excluded: | ||||||||||
Expenses associated with the Calvin Klein restructuring | (68.6 | ) | ||||||||
Expenses associated with the TH U.S. store closures | (54.9 | ) | ||||||||
Expenses associated with the refinancing of the Company’s senior credit facilities | (1.0 | ) | ||||||||
Expenses associated with the TH China acquisition | — | (6.9 | ) | |||||||
SG&A expenses on a non-GAAP basis | $ | 1,037.0 | $ | 1,046.1 | ||||||
Table 5 - Reconciliation of GAAP debt modification and extinguishment costs to debt modification and extinguishment costs on a non-GAAP basis | ||||||
Quarter Ended | ||||||
5/5/19 | ||||||
Debt modification and extinguishment costs | $ | 5.2 | ||||
Item excluded: | ||||||
Costs incurred associated with the refinancing of the Company’s senior credit facilities | (5.2 | ) | ||||
Debt modification and extinguishment costs on a non-GAAP basis | $ | — | ||||
17
PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts (continued)
(In millions)
Table 6 - Reconciliations of GAAP income tax expense to income tax expense on a non-GAAP basis | ||||||||||
Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | |||||||||
Income tax expense | $ | 23.6 | $ | 37.0 | ||||||
Item excluded: | ||||||||||
Tax effects of pre-tax items identified as non-GAAP exclusions (1) | 27.0 | 1.5 | ||||||||
Income tax expense on a non-GAAP basis | $ | 50.6 | $ | 38.5 | ||||||
(1) The estimated tax effects associated with the Company’s exclusions on a non-GAAP basis are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each pre-tax item that it had identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible and, if so, in what jurisdiction the tax expense or tax deduction would occur. All of the pre-tax items identified as non-GAAP exclusions were identified as either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect. | ||||||||||
Table 7 - Reconciliation of GAAP depreciation and amortization expense to depreciation and amortization expense on a non-GAAP basis | ||||||
Quarter Ended | ||||||
5/6/18 | ||||||
Depreciation and amortization expense | $ | 83.2 | ||||
Item excluded: | ||||||
Amortization of short-lived assets associated with the TH China acquisition | (6.9 | ) | ||||
Depreciation and amortization expense on a non-GAAP basis | $ | 76.3 | ||||
18
PVH CORP.
Notes to Consolidated GAAP Income Statements
(In millions, except per share data)
A. The Company computed its diluted net income per common share as follows:
Quarter Ended | Quarter Ended | ||||||||||||||||||||||||||
5/5/19 | 5/6/18 | ||||||||||||||||||||||||||
GAAP | Non-GAAP | GAAP | Non-GAAP | ||||||||||||||||||||||||
Results | Adjustments | (1) | Results | Results | Adjustments | (2) | Results | ||||||||||||||||||||
Net income attributable to PVH Corp. | $ | 82.0 | $ | (104.4 | ) | $ | 186.4 | $ | 179.4 | $ | (5.4 | ) | $ | 184.8 | |||||||||||||
Weighted average common shares | 75.2 | 75.2 | 77.1 | 77.1 | |||||||||||||||||||||||
Weighted average dilutive securities | 0.7 | 0.7 | 1.1 | 1.1 | |||||||||||||||||||||||
Total shares | 75.9 | 75.9 | 78.2 | 78.2 | |||||||||||||||||||||||
Diluted net income per common share attributable to PVH Corp. | $ | 1.08 | $ | 2.46 | $ | 2.29 | $ | 2.36 | |||||||||||||||||||
(1) | Represents the impact on net income in the quarter ended May 5, 2019 from the elimination of (i) the costs related to the Calvin Klein restructuring; (ii) the costs in connection with the TH U.S. store closures; (iii) the costs in connection with the refinancing of the Company’s senior credit facilities; and (iv) the tax effects associated with the foregoing pre-tax items. Please see Table 1 for the reconciliation of GAAP net income to net income on a non-GAAP basis. |
(2) Represents the impact on net income in the quarter ended May 6, 2018 from the elimination of the costs related to the TH China acquisition, consisting of noncash amortization of short-lived assets, and the resulting tax effect. Please see Table 1 for the reconciliation of GAAP net income to net income on a non-GAAP basis.
19
PVH CORP.
Consolidated Balance Sheets
(In millions)
5/5/19 | 5/6/18 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash and Cash Equivalents | $ | 494.3 | $ | 434.5 | |||
Receivables | 876.0 | 812.3 | |||||
Inventories | 1,608.4 | 1,524.9 | |||||
Other | 274.7 | 269.9 | |||||
Total Current Assets | 3,253.4 | 3,041.6 | |||||
Property, Plant and Equipment | 962.3 | 873.5 | |||||
Operating Lease Right-of-use Assets (1) | 1,606.0 | ||||||
Goodwill and Other Intangible Assets | 7,149.7 | 7,434.9 | |||||
Other Assets | 383.6 | 364.6 | |||||
$ | 13,355.0 | $ | 11,714.6 | ||||
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | |||||||
Accounts Payable and Accrued Expenses | $ | 1,541.6 | $ | 1,472.6 | |||
Current Portion of Operating Lease Liabilities (1) | 334.3 | ||||||
Short-Term Borrowings | 299.7 | 254.5 | |||||
Current Portion of Long-Term Debt | 31.0 | — | |||||
Other Liabilities | 1,128.3 | 1,408.2 | |||||
Long-Term Portion of Operating Lease Liabilities (1) | 1,499.4 | ||||||
Long-Term Debt | 2,759.4 | 3,013.2 | |||||
Redeemable Non-Controlling Interest | (0.2 | ) | 1.5 | ||||
Stockholders’ Equity | 5,761.5 | 5,564.6 | |||||
$ | 13,355.0 | $ | 11,714.6 | ||||
Note: Year over year balances are impacted by changes in foreign currency exchange rates.
(1) Operating Lease Right-of-use Assets, Current Portion of Operating Lease Liabilities and Long-Term Portion of Operating Lease Liabilities as of May 5, 2019 reflect the impact of the adoption of the new lease accounting guidance in the first quarter of 2019.
20
PVH CORP. | |||||||||||
Segment Data | |||||||||||
(In millions) | |||||||||||
REVENUE BY SEGMENT | |||||||||||
Quarter Ended | Quarter Ended | ||||||||||
5/5/19 | 5/6/18 | ||||||||||
Tommy Hilfiger North America | |||||||||||
Net sales | $ | 347.8 | $ | 338.9 | |||||||
Royalty revenue | 18.7 | 18.4 | |||||||||
Advertising and other revenue | 5.3 | 3.9 | |||||||||
Total | 371.8 | 361.2 | |||||||||
Tommy Hilfiger International | |||||||||||
Net sales | 662.7 | 637.2 | |||||||||
Royalty revenue | 13.2 | 12.0 | |||||||||
Advertising and other revenue | 4.4 | 5.4 | |||||||||
Total | 680.3 | 654.6 | |||||||||
Total Tommy Hilfiger | |||||||||||
Net sales | 1,010.5 | 976.1 | |||||||||
Royalty revenue | 31.9 | 30.4 | |||||||||
Advertising and other revenue | 9.7 | 9.3 | |||||||||
Total | 1,052.1 | 1,015.8 | |||||||||
Calvin Klein North America | |||||||||||
Net sales | 378.4 | 367.3 | |||||||||
Royalty revenue | 33.4 | 34.0 | |||||||||
Advertising and other revenue | 12.2 | 13.2 | |||||||||
Total | 424.0 | 414.5 | |||||||||
Calvin Klein International | |||||||||||
Net sales | 441.1 | 448.8 | |||||||||
Royalty revenue | 17.9 | 18.5 | |||||||||
Advertising and other revenue | 6.6 | 8.2 | |||||||||
Total | 465.6 | 475.5 | |||||||||
Total Calvin Klein | |||||||||||
Net sales | 819.5 | 816.1 | |||||||||
Royalty revenue | 51.3 | 52.5 | |||||||||
Advertising and other revenue | 18.8 | 21.4 | |||||||||
Total | 889.6 | 890.0 | |||||||||
Heritage Brands Wholesale | |||||||||||
Net sales | 350.3 | 340.8 | |||||||||
Royalty revenue | 5.1 | 5.4 | |||||||||
Advertising and other revenue | 1.0 | 0.9 | |||||||||
Total | 356.4 | 347.1 | |||||||||
Heritage Brands Retail | |||||||||||
Net sales | 57.0 | 60.5 | |||||||||
Royalty revenue | 1.1 | 1.1 | |||||||||
Advertising and other revenue | 0.1 | 0.1 | |||||||||
Total | 58.2 | 61.7 | |||||||||
Total Heritage Brands | |||||||||||
Net sales | 407.3 | 401.3 | |||||||||
Royalty revenue | 6.2 | 6.5 | |||||||||
Advertising and other revenue | 1.1 | 1.0 | |||||||||
Total | 414.6 | 408.8 | |||||||||
Total Revenue | |||||||||||
Net sales | 2,237.3 | 2,193.5 | |||||||||
Royalty revenue | 89.4 | 89.4 | |||||||||
Advertising and other revenue | 29.6 | 31.7 | |||||||||
Total | $ | 2,356.3 | $ | 2,314.6 | |||||||
21
PVH CORP. | |||||||||||||||||||||||||||
Segment Data (continued) | |||||||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||||||
EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT | |||||||||||||||||||||||||||
Quarter Ended | Quarter Ended | ||||||||||||||||||||||||||
5/5/19 | 5/6/18 | ||||||||||||||||||||||||||
Results | Results | ||||||||||||||||||||||||||
Under | Non-GAAP | Under | Non-GAAP | ||||||||||||||||||||||||
GAAP | Adjustments(1) | Results | GAAP | Adjustments(2) | Results | ||||||||||||||||||||||
Tommy Hilfiger North America | $ | (14.7 | ) | $ | (54.9 | ) | $ | 40.2 | $ | 40.8 | $ | 40.8 | |||||||||||||||
Tommy Hilfiger International | 106.8 | 106.8 | 91.2 | (6.9 | ) | 98.1 | |||||||||||||||||||||
Total Tommy Hilfiger | 92.1 | (54.9 | ) | 147.0 | 132.0 | (6.9 | ) | 138.9 | |||||||||||||||||||
Calvin Klein North America | 1.4 | (50.9 | ) | 52.3 | 43.5 | 43.5 | |||||||||||||||||||||
Calvin Klein International | 46.9 | (19.4 | ) | 66.3 | 65.1 | 65.1 | |||||||||||||||||||||
Total Calvin Klein | 48.3 | (70.3 | ) | 118.6 | 108.6 | 108.6 | |||||||||||||||||||||
Heritage Brands Wholesale | 39.0 | 39.0 | 39.8 | 39.8 | |||||||||||||||||||||||
Heritage Brands Retail | 1.0 | 1.0 | 1.8 | 1.8 | |||||||||||||||||||||||
Total Heritage Brands | 40.0 | 40.0 | 41.6 | 41.6 | |||||||||||||||||||||||
Corporate | (45.3 | ) | (6.2 | ) | (39.1 | ) | (37.9 | ) | (37.9 | ) | |||||||||||||||||
Total earnings before interest and taxes | $ | 135.1 | $ | (131.4 | ) | $ | 266.5 | $ | 244.3 | $ | (6.9 | ) | $ | 251.2 | |||||||||||||
(1) | The adjustments for the quarter ended May 5, 2019 represent the elimination of (i) the costs related to the Calvin Klein restructuring; (ii) the costs in connection with the TH U.S. store closures; and (iii) the costs in connection with the refinancing of the Company’s senior credit facilities. |
(2) | The adjustment for the quarter ended May 6, 2018 represents the elimination of the costs related to the TH China acquisition, consisting of noncash amortization of short-lived assets. |
22
PVH CORP.
Reconciliations of 2019 Constant Currency Revenue
(In millions)
As a supplement to the Company’s reported operating results, the Company presents constant currency revenue information, which is a non-GAAP financial measure. The Company presents results in this manner because it is a global company that transacts business in multiple currencies but reports financial information in U.S. dollars. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues. Exchange rate fluctuations can have a significant effect on reported revenues. The Company believes presenting constant currency revenue information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency exchange rates and assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.
The Company calculates constant currency revenue information by translating its foreign revenues for the current year period into U.S. dollars at the average exchange rates in effect during the comparable prior year period (rather than at the actual exchange rates in effect during the current year period).
Constant currency performance should be viewed in addition to, and not in lieu of or as superior to, the Company’s operating performance calculated in accordance with GAAP. The constant currency revenue information presented may not be comparable to similarly described measures reported by other companies.
GAAP Revenue | % Change | ||||||||||||||||
Quarter Ended | GAAP | Negative Impact of Foreign Exchange | Constant Currency | ||||||||||||||
5/5/19 | 5/6/18 | ||||||||||||||||
Tommy Hilfiger North America | $ | 371.8 | $ | 361.2 | 2.9 | % | (0.5 | )% | 3.4 | % | |||||||
Tommy Hilfiger International | 680.3 | 654.6 | 3.9 | % | (8.4 | )% | 12.3 | % | |||||||||
Total Tommy Hilfiger | 1,052.1 | 1,015.8 | 3.6 | % | (5.6 | )% | 9.2 | % | |||||||||
Calvin Klein North America | $ | 424.0 | $ | 414.5 | 2.3 | % | (0.5 | )% | 2.8 | % | |||||||
Calvin Klein International | 465.6 | 475.5 | (2.1 | )% | (7.1 | )% | 5.0 | % | |||||||||
Total Calvin Klein | 889.6 | 890.0 | — | % | (4.0 | )% | 4.0 | % | |||||||||
Total Revenue | $ | 2,356.3 | $ | 2,314.6 | 1.8 | % | (4.1 | )% | 5.9 | % | |||||||
23
PVH CORP.
Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts
The Company is presenting its 2019 estimated results on a non-GAAP basis by excluding (i) the costs incurred and expected to be incurred related to the Calvin Klein restructuring, consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York; other noncash asset impairments; severance; contract termination and other costs; and inventory markdowns; (ii) the costs incurred in connection with the TH U.S. store closures, primarily consisting of noncash lease asset impairments; (iii) the costs incurred in connection with the refinancing of the Company’s senior credit facilities; (iv) the aggregate net gain expected to be recorded in connection with the pending acquisition of the approximately 78% interest in Gazal Corporation Limited (“Gazal”) that it does not already own, and the pending acquisition of the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from the Company’s current licensee in those markets, consisting of a noncash gain to write up the Company's equity investments in Gazal and PVH Brands Australia Pty. Limited to fair value, partially offset by costs related to both pending acquisitions, primarily consisting of noncash valuation adjustments and amortization of short-lived assets; and (v) the estimated tax effects associated with the foregoing pre-tax items. The Company has provided the reconciliations set forth below to present its estimates on a GAAP basis and excluding the foregoing amounts.
The 2019 estimated results are presented on both a GAAP and non-GAAP basis. The Company believes presenting these results on a non-GAAP basis provides useful additional information to investors. The Company excludes such amounts that it deems to be non-recurring or non-operational and believes that excluding them (i) 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, and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business 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’s results excluding the items described above are also the basis for certain incentive compensation calculations. The non-GAAP measures should be viewed in addition to, and not in lieu of or as superior to, the Company’s operating performance measures calculated in accordance with GAAP. The information presented on a non-GAAP basis may not be comparable to similarly titled measures reported by other companies.
The estimated tax effects associated with the above pre-tax items are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each pre-tax item identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and, if so, in what jurisdiction the tax expense or tax deduction would occur. All of the pre-tax items identified as non-GAAP exclusions were identified as either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.
2019 Net Income Per Common Share Reconciliations | ||||||
Current Guidance | Previous Guidance | |||||
Full Year 2019 (Estimated) | Second Quarter 2019 (Estimated) | Full Year 2019 (Estimated) | First Quarter 2019 (Estimated) | |||
GAAP net income per common share attributable to PVH Corp. | $9.05 - $9.15 | $2.75 - $2.80 | $8.90 - $9.00 | $0.25 - $0.30 | ||
Estimated per common share impact of items identified as non-GAAP exclusions | $(1.15) | $0.90 | $(1.40) | $(2.15) | ||
Net income per common share attributable to PVH Corp. on a non-GAAP basis | $10.20 - $10.30 | $1.85 - $1.90 | $10.30 - $10.40 | $2.40 - $2.45 | ||
2019 Tax Rate Reconciliations | Full Year 2019 (Estimated) | Second Quarter 2019 (Estimated) | ||
GAAP tax rate | 14.5% to 15.5% | 21% to 22% | ||
Estimated tax rate impacts from items identified as non-GAAP exclusions | 0.5% | (0.5)% | ||
Tax rate on a non-GAAP basis | 14% to 15% | 21.5% to 22.5% | ||
The GAAP net income per common share attributable to PVH Corp. amounts presented in the above table, as well as the amounts excluded in providing non-GAAP earnings guidance, would be expected to change as a result of (i) acquisition, restructuring, divestment or similar transactions or activities, (ii) the timing and strategy of restructuring and integration initiatives or other one-
24
PVH CORP.
Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts (continued)
time events, if any, that the Company engages in or suffers during the period, (iii) any market or other changes affecting the Company’s expected actuarial gain or loss on retirement plans, (iv) the imposition of significant tariffs on apparel, footwear and accessories imported from China or any of the Company’s other significant sourcing countries, or (v) any discrete tax events including changes in tax rates or tax law and events arising from audits or the resolution of uncertain tax positions. The Company has no current understanding or agreement regarding any such transaction or definitive plans regarding any such activity identified in clause (i) or (ii) that has not been announced or completed. The Company notes that tariffs on certain of its products imported into the U.S. from China have been recently increased and there is a threat that additional tariffs will be imposed as early as June 2019.
2019 Constant Currency Revenue Reconciliations | ||||||||
Full Year 2019 (Estimated) (Consolidated) | Full Year 2019 (Estimated) (Tommy Hilfiger) | Full Year 2019 (Estimated) (Calvin Klein) | Second Quarter 2019 (Estimated) (Consolidated) | Second Quarter 2019 (Estimated) (Tommy Hilfiger) | Second Quarter 2019 (Estimated) (Calvin Klein) | |||
GAAP revenue increase (decrease) | 3% | 6% | —% | —% | 3% | (4)% | ||
Negative impact of foreign exchange | (2)% | (3)% | (2)% | (2)% | (3)% | (2)% | ||
Non-GAAP revenue increase (decrease) on a constant currency basis | 5% | 9% | 2% | 2% | 6% | (2)% | ||
Please refer to the section entitled “Reconciliations of 2019 Constant Currency Revenue” for a description of the presentation of constant currency amounts.
Reconciliation of GAAP Diluted Net Income Per Common Share to Diluted Net Income Per Common Share on a Non-GAAP Basis (Net Income in millions) | ||||||||||||||||||||||||
Full Year 2018 | Second Quarter 2018 | |||||||||||||||||||||||
(Actual) | (Actual) | |||||||||||||||||||||||
(In millions, except per share data) | Results Under GAAP | Adjustments | (1) | Non-GAAP Results | Results Under GAAP | Adjustments | (2) | Non-GAAP Results | ||||||||||||||||
Net income | $ | 746.4 | $ | 4.0 | $ | 742.4 | $ | 165.2 | $ | (4.9 | ) | $ | 170.1 | |||||||||||
Total weighted average shares | 77.3 | 77.3 | 77.9 | 77.9 | ||||||||||||||||||||
Diluted net income per common share | $ | 9.65 | $ | 9.60 | $ | 2.12 | $ | 2.18 | ||||||||||||||||
(1) Represents the impact on net income in the year ended February 3, 2019 from the elimination of (i) a $15.0 million recognized actuarial loss on retirement plans; (ii) $23.6 million of costs related to the TH China acquisition, consisting of noncash amortization of short-lived assets; (iii) $40.7 million of costs related to the Calvin Klein restructuring, primarily consisting of severance, noncash asset impairments, contract termination and other costs, and inventory markdowns; (iv) $17.5 million of tax benefits associated with the foregoing pre-tax items; (v) a $24.7 million discrete net tax benefit associated with the U.S. Tax Cuts and Jobs Act of 2017; and (vi) a $41.1 million discrete tax benefit related to the remeasurement of certain of the Company’s net deferred tax liabilities in connection with the enactment of legislation in the Netherlands known as the “2019 Dutch Tax Plan.”
(2) Represents the impact on net income in the quarter ended August 5, 2018 from the elimination of $6.7 million of costs related to the TH China acquisition, consisting of noncash amortization of short-lived assets, and the resulting $1.8 million tax benefit.
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