The Calvin Klein brand has struggled in Europe

The Calvin Klein brand has struggled in Europe

Apparel giant PVH Corp has outlined a six-pronged plan for its Calvin Klein business that it hopes will improve the brand's performance, which continues to be under pressure in Europe.

Revenue in the Calvin Klein business increased $371m to $688m in the fourth quarter - but while it performed well in Brazil and Asia, comps fell 7% in Europe. This was mainly due to a restructuring of the sales distribution mix in the region and the business' concentration in Southern Europe, PVH said.

Meanwhile in North America, while the Calvin Klein business performed well across most product categories, men's and women's jeans were an exception. As a result, comps in retail stores were flat in North America.

PVH now forecasts 5% growth for Calvin Klein in fiscal 2015, which the group says is "not as high as we would expect," with flat comps likely in the first quarter.

Investment plans
Nonetheless, CEO Emanuel Chirico says PVH is increasing strategic investments in operating expenses in order to "build a solid foundation" for the Calvin Klein businesses globally. These will fall into six categories.

The first will involve filling key open positions across the global CK jeans and underwear businesses, and the second, enhancing systems.

"[We will] continue the investments and the enhancements of the systems, the operating infrastructure and the overall operating platform at jeans and underwear," he told analysts on the firm's earnings call.

"We're also significantly reducing our off-price sales and warehouse club sales in North America and Europe. We need to bring our overall jeans and underwear sales distribution to the same healthy mix of sales that we have in our other highly profitable Calvin Klein businesses."

The fourth area of focus will be on upgrading the quality and the design of the Calvin Klein jeans product, which should begin to generate benefits in the second half of 2014.

"We're making significant investments at point of sale. We're elevating the presentation and point-of-sale marketing of the Calvin Klein jeans and underwear retail presentations across the board globally, and we continue to invest in e-commerce business at both Tommy Hilfiger and Calvin Klein in order to support the significant growth that we are experiencing in both of these brands' e-commerce business."

European opportunity
Chirico told analysts that both North America and Europe present a "real opportunity" for the Calvin Klein jeans brand.

"It's just about a $500m business in Europe that is projected to break even this year, so if you compare that to the Tommy Hilfiger business, which is at least three times as large but operates at 17% operating margins, our goal is to move Calvin over the next number of years to a 10% operating margin. That's the track record.

"The fact that Europe is such a big market for us and the fact that it's so underperforming, it really creates an opportunity for us as we go forward."

Chirico said fiscal 2014 will represent "two stories": the first half pressured by the increased level of support being pumped in to the strategic initiatives, and the second reflecting the first season of new product from its newly-established designer sourcing teams.

He added: "We will also start seeing the beginnings of the benefits from our improved marketing presentation and investment and enhanced retail presentations that we have in our stores and at point of sale with our key department store accounts.

"We believe the investments we are making today in the Calvin Klein business will allow us to drive ongoing earnings per share growth of 15%-plus in 2015 and beyond."

Cautious outlook
Looking ahead, however, PVH said the "difficult macroeconomic environment" meant the company was being cautious on its first-quarter guidance and expects adjusted profit of $1.45 to $1.50 per share on sales of $2bn.

Nonetheless, UBS analyst Michael Binetti has described PVH as "an accelerating growth story". He noted: "With CK turning a corner - and Tommy brand issues diminishing - we believe the $12 upside case is relevant. With accelerating trends through 2014...PVH remains a top pick in 2014."