PVH
#So the first part of the question, the underwear business, how big can it be.
The growth opportunity is women's.
Women's overall for us is about 40% of our underwear business.
The women's market is five times the size of the men's market so clearly there is a huge opportunity for us in women's here in North America.
In men's, the opportunity here in North America continues to be the channel diversification that is somewhat going on.
Calvin Klein is a department store brand from Nordstrom's to Macy's.
Those are our key large accounts, Bloomingdale's.
As you think about it with the growth of pure plays, it is opening us up to a newer consumer and we are capturing that marketshare be it in on Amazon or urbanoutfitters.com.
So really the channel play there in the United States is important for us as we move forward as well.
Internationally it is just all white space.
We have huge opportunity in Europe to continue to grow that business as the brand continues to expand there both in men's and women's.
And in Asia which is a direct retail play for us, we continue to see strong comp store sales performance there and I think both men's and women's can continue to grow.
So I think the underwear business could continue to grow in the mid to high single digits for an extended period of time.
The second part of the question, I'm sorry.
<UNK>, could you repeat it.
Okay, I think the second part of the question is easier to understand because we are agnostic about where the consumer buys products.
By that I mean we have a very profitable retail direct to consumer channel, our wholesale business is highly profitable within 100 basis points of each other.
And as e-commerce scales both our own and the pure plays and our wholesale.com business, our profitability in that channel is similar to our profitability in the wholesale channel.
So from a profitability point of view, we are going to manage the distribution from a brand point of view but it really doesn't change or dramatically impact our profitability at all.
On the distribution channel, what we do find is the specialty store channel and the dot-com channel opens us up to a younger consumer, not only for underwear but for all of our businesses.
That is exciting for us and we are connecting with that consumer from a marketing perspective, a marketing campaign to engage.
Our digital spend in Calvin and Tommy today is over 65% of our marketing spend is really occurring on a digital basis and we are really trying to move and connect with that consumer emotionally and they shop differently.
At the same time, we are not looking to alienate our core department store customer in North America or around the world and we believe are able to balance that through our channels of distribution.
So we think we are in a strong position to manage the brick and mortar evolution that is going on at the same time take advantage of the growth that is occurring in the e-commerce channel.
That is an excellent question and an interesting question.
Clearly the currency situation levels are off.
There is an opportunity to really get back the margin that we have given up in the business and I think between both businesses internationally we have lost about 300 basis points of operating margin driven by the strengthening US dollar.
I think if currencies just stayed where they are and more or less level here, I believe we can capture back half of that over the next three years.
I think if currencies were to start to swing the other way marginally and start to improve, that is how you capture back the other half of it as we move forward.
So it is something that we really need to watch.
We've got very ---+ <UNK> and <UNK> have very sophisticated hedging strategies to really get us through the next 12 months from a transaction point of view but as you go long-term and since inventory throughout the world in Europe, throughout Asia is bought in US dollars, you can hedge and you can go out probably 15 months.
But once those hedges fall off, if currencies remain weak against the US dollar, you are going to have to deal with that at that point in time and that is what is happening to us in 2016.
So hopefully we are optimistic that we will see some strengthening of some of the currencies against the US dollar, particularly the euro given the strengthening of that economy as we move forward.
But who knows what it is going to be in the short term.
I hope I answered your question from a profitability point of view.
Well, our international stores even with the hit we are taking in topline are by far our most profitable stores.
The volumes that you do, just think about the volumes that we do in Orlando and Miami and [Harlem] in New York which are by far ---+ and Las Vegas which are probably the three or four largest centers in the country.
The sales per square foot despite experiencing a comp store decline that is probably over 20% in those stores continues to be our highest performing comp stores.
So it is not a profitability issue from the point of view of overall profitability but just given the decline in sales volume and the margin pressure that that caused over the last 12 months, it is taken out of the performance of that business.
And we report our North American and our European international businesses and you can see North America the margin pressure that we have been under and the top line impacts that it had.
But even with that, we continue to report double digit operating margins in those businesses.
And I think once that starts to level out ---+ and as you said, the comparisons do start to get easier as you get into September and October.
So we are all hopeful that on a stacked two year comp basis that we can start to see a better trend in our retail comp performance in the second half but we are not counting on it to significantly improve.
Sure.
It is an exciting campaign.
Gigi is so hot and she is such a great ambassador for the brand.
We are investing significant dollars in that campaign and as <UNK> said in our comments, we are planning marketing expenditure increases throughout the second half and that focus really will be on Calvin and Tommy and Gigi is a key part of that marketing investment.
I think the opportunity is not so much just the GG collection.
I think that creates buzz with the consumer, I think you will see it all over and you will see the key retailers and you will also see it really advertised significantly globally but I think it really provides a platform and a foundation to really move the Tommy women's business as we go forward.
I think we for the last three years we have been making significant investments in our e-commerce platform.
That is not going to slow down but I think that is all factored into where we are.
Capital spending for us is between $250 million to $300 million in a given year.
I can assure you that systems are a big piece of that, platforms are a big piece.
If we made a decision that the commerce business is growing so strongly that we need a separate warehouse for e-commerce, that would be a major capital investment but you could be sure that there would be a significant expense benefit associated with making that investment based on the efficiencies that would come out of a standalone warehouse facility here in North America or Europe or Asia.
So I think we are very comfortable with the investments we have made which we continue to make and I think the business will continue to evolve and our business and our investments will evolve along where we see those growth initiatives.
Okay, if I could we are going to take one more question so we can all get back to work for the second quarter.
Operator.
I think they have strengthened.
I think one of the things, we listen to our customers and one of the things that we talked about three, four years ago is they wanted us from an e-commerce point of view, from a dot-com point of view.
They wanted us to help drive traffic to their sites.
So we made the decision in North America not to compete directly with them on line.
And by that I mean is I think competitors whoever they are, have much bigger direct e-commerce sites than we have.
We have made the strategic decision to partner with our department store customers to really expand their e-commerce businesses to make investments on their platforms that our brands are well-positioned not only in their brick and mortar stores but also in their e-commerce sites.
And obviously we are seeing outsized growth with that channel of distribution be it Macys.com or LordandTaylor.com.
So we are really making investments along with them to drive that business so I don't feel a [constant] growing there.
I think the Amazon situation, it is an opportunity.
We try to have different merchandising strategies for both players, it is not the same performance.
Obviously the fashion quotient at Macy's is much stronger, much deeper.
Amazon really knows how to sell core product.
They are trying to get into the fashion world but they haven't proved that yet and we will see how that all plays out.
But clearly for us comparative wise, it hasn't been a major discussion point.
Calvin and Tommy depending on the retailer in North America, we are two of the top four brands in every major retailer in north America where it is appropriate for us to sell our goods.
So the relationships really have never been better and the channel conflict that we manage every day has been going on for the last 20 years whether there was concerns about our own retail stores, whatever and that is ---+ being a global brand that is what we do, that is what we get paid for so I have not seen that intensify significantly.
Thank you so much, everyone.
I wish everyone a happy, safe Memorial Day weekend to kick off the summer and hopefully some better selling at retail here in the United States.
And we look forward to speaking to you in August about the second-quarter performance.
Have a good day, everyone.
