PVH Q2 sales exceeded guidance thanks to continued strength in the Calvin Klein business

PVH Q2 sales exceeded guidance thanks to continued strength in the Calvin Klein business

PVH Corp says it is “very well-positioned” in China and has not suffered as a result of the recent yuan devaluation, but will be “more conservative” with its Calvin Klein business in the country heading into 2016.

The US apparel giant last week booked higher second-quarter EPS and sales that exceeded guidance thanks to continued strength in the Calvin Klein business.

Speaking on the firm's earnings call, CEO Emanuel Chirico told analysts that comparable same-store sales in the Calvin Klein business in China have been running between mid-single digit to high-single digits for the first six months of the year.

“The challenge is trying to get beyond a lot of the noise that's going on from the stock market point of view and where we see the business moving and going. You can't help but look at that business and be a little bit more conservative about how we project that business out, both through the balance of this year and then moving into 2016 and beyond. So it just gives us pause.”

He added: “We've seen how the luxury market has been hit from the sales point of view. We haven't experienced anything like that. I think our brands - both Calvin and Tommy - are very well positioned in that market as premium brands, affordable luxury. So I think that works to our advantage and we have strong brands that are really executing from that point of view. The China market continues to be a growth market for us. We will continue to expand there.

Chirico said PVH still also sees the potential for licence buyback opportunities in China, particularly for the Tommy Hilfiger business.

“We're acquiring the 55% of the Tommy Hilfiger license business that we don't own throughout China, which is very healthy and very profitable. I try not to make macro issues really impact that decision. Strategically, it makes all the sense in the world for us to own that business.

“Clearly, one of our goals would be to own that business sooner rather than later. It just makes too much sense from a brand point of view; and I think financially, it should be a nice transaction for us.”

Aside from the macroeconomic issues in China, Chirico said the biggest headwind for 2016 will be currency, given it is “usually indicative of what's going on in the underlying economies”. He pointed to Europe, in particular, as a region to watch.

“[Europe] has gone through some macro issues, but we're actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging. The challenge we are facing in Europe for 2016 will be cost increases that are double-digit cost increases, and how much of that is reasonable in one or two seasons to pass on to the consumer.”