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01/10 16:41
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed outlook. While there is strong revenue growth in the Americas and strategic marketing investments, the decline in EPS and high inventory levels are concerning. The management's optimistic guidance and efforts to mitigate tariffs are positive, but the lack of specific details on tariff impacts and promotional trends introduces uncertainty. The overall sentiment is neutral, as positive elements are balanced by negative and uncertain factors.
Revenue Growth Revenue grew 4% on a reported basis and 1% on a constant currency basis year-over-year. The growth was driven by strong performance in direct-to-consumer and wholesale channels, particularly in the Americas and Europe. However, Asia Pacific saw a decline due to a choppy consumer environment, especially in China.
Gross Margin Gross margin was 57.7%, a decrease of 240 basis points compared to last year. The decline was attributed to higher promotions, wholesale shipment mix, Calvin Klein product shipment delays, and an early impact of tariffs.
SG&A Spending SG&A spending decreased in constant currency, improving by 140 basis points year-over-year to 49.5% of revenue. This improvement was due to strong cost discipline and efficiency measures under the Growth Driver 5 Actions.
Earnings Per Share (EPS) EPS was $2.52, down from $3.01 last year. The decline was due to the absence of a $0.55 tax benefit from a prior year settlement. However, EPS exceeded expectations despite a $0.06 negative impact from tariffs.
Inventory Levels Inventory increased by 13% year-over-year, including a 1% increase due to tariffs. The rise was planned to support sales in the third quarter and focused on best-selling core product categories.
Regional Performance - Americas Revenue grew by 11%, driven by double-digit growth in wholesale and flat direct-to-consumer revenue. Digital commerce saw double-digit growth, marking the fourth consecutive quarter of year-over-year growth.
Regional Performance - Europe Revenue was up 3% on a reported basis but down 3% in constant currency. Direct-to-consumer sales grew slightly, while wholesale revenue declined due to shipment timing.
Regional Performance - Asia Pacific Revenue declined by 3% in constant currency, showing a significant sequential improvement. Growth in digital commerce was offset by declines in wholesale and physical stores, particularly in China.
Calvin Klein Underwear: Strong growth driven by campaigns featuring global talent like Bad Bunny. Men's cotton stretch styles up 14% globally. Launching new women's Icon Cotton Modal franchise with global campaign.
Calvin Klein Denim: 19% growth in fashion denim driven by new styles and campaigns featuring K-pop star Mingyu. New tools like Lookbook style denim fit guide introduced.
Tommy Hilfiger Lifestyle: Expanded into dress casual category for men and launched Tommy Girl Capsule for women, attracting younger consumers. Strong sell-through across regions.
Europe: Positive D2C growth and wholesale order books for spring '26 up low single digits. Fourth consecutive quarter of store revenue growth.
North America: Revenue grew by low double digits. Strong digital channel growth with double-digit traffic increase. Positive consumer growth across digital platforms.
Asia Pacific: Better-than-expected performance with sequential improvement. Strong execution during key holidays like 618, with high single-digit GMV growth.
Inventory Management: Inventory up 13% to support sales, with improvements in availability across regions and channels. Inventory remains fresh and current.
SG&A Discipline: SG&A spending down in constant currency, improving SG&A as a percentage of revenue by 140 basis points.
Marketing Investments: Increased investments in marketing to amplify campaigns and drive consumer engagement globally.
Tariff Mitigation: Strategic actions planned to mitigate $70 million tariff impact, leveraging global sourcing partners and optimizing value chain.
Tariff Rates: Tariff rates have effectively doubled since the last call, posing a significant cost challenge. The company expects an unmitigated impact of approximately $70 million to EBIT or $1.15 per share for 2025.
Global Macroeconomic Uncertainty: The global macroeconomic environment remains uncertain, which could impact consumer spending behavior and overall business performance.
Operational Challenges in Calvin Klein: The company faced operational issues while setting up the Calvin Klein global product capability in New York, which impacted gross margins and shipment timings. Although improvements are underway, these challenges have affected performance.
Asia Pacific Market Conditions: The Asia Pacific region, particularly China, continues to experience a choppy consumer environment, with revenue declining by low single digits in constant currency.
Wholesale Shipment Timing: Timing shifts in wholesale shipments, particularly in the Americas and EMEA, have created revenue fluctuations and could impact financial planning.
Increased Marketing Investments: The company has increased marketing investments to support brand-building campaigns, which could pressure SG&A expenses in the short term.
Inventory Levels: Inventory levels are up 13% compared to the previous year, which could pose risks if consumer demand does not align with projections.
Revenue Guidance: Reaffirmed full-year constant currency revenue guidance of flat to a slight increase. Reported revenue is now projected to increase slightly to low single digits due to favorable exchange rates.
Operating Margin: Full-year operating margin outlook remains at approximately 8.5%.
Earnings Per Share (EPS): Full-year EPS guidance remains in the range of $10.75 to $11.00.
Tariff Impact: Incremental tariffs are expected to have a net negative impact of approximately $70 million on EBIT or $1.15 per share. Mitigation actions are planned to offset some of these costs in the second half of the year.
Regional Revenue Projections: Europe is expected to return to growth. Americas revenue is planned to increase mid-single digits, including the impact of Calvin Klein women's sportswear and jeans wholesale transition in-house. Asia Pacific revenue is planned to decline mid-single digits in constant currency.
Marketing Investments: Increased marketing investments planned for the second half of the year to support brand-building campaigns and consumer engagement.
Gross Margin: Full-year gross margin is expected to decrease approximately 250 basis points versus last year, with incremental tariff headwinds partially offset by improvements realized in Q2.
SG&A Expenses: SG&A expenses are expected to decrease in constant currency for 2025 compared to 2024, with a reduction of approximately 100 basis points as a percentage of revenue.
Growth Driver 5 Actions: Expected to deliver 200 to 300 basis points of operating margin expansion over time, with nearly 200 basis points of benefit expected in Q4 2025.
Third Quarter Revenue: Projected to be flat to a slight increase on a reported basis and down slightly on a constant currency basis compared to the prior year.
Third Quarter Operating Margin: Expected to be approximately 8%, down approximately 250 basis points compared to last year.
Third Quarter EPS: Expected to be in the range of $2.35 to $2.50.
The selected topic was not discussed during the call.
The earnings call highlighted mixed results: positive earnings per share and digital growth, but challenges in Europe and flat revenue in Asia Pacific. Marketing investments showed promise, yet gross margin declined. Q&A insights confirmed positive trends in Americas and APAC, but management was vague on some specifics. Overall, the reaffirmed guidance and operational improvements are offset by tariff impacts and regional challenges, leading to a neutral sentiment.
The earnings call summary shows strong financial performance with an EPS beat and improvements in operating margins, despite challenges like tariffs. The Q&A reveals positive regional growth, effective marketing strategies, and strong cash flow management. The optimistic outlook for 2026 and ongoing brand improvements further support a positive sentiment. Although management was vague on some specifics, the overall tone was optimistic, particularly with promising regional performance and strategic marketing efforts.
The earnings call presents a mixed outlook. While there is strong revenue growth in the Americas and strategic marketing investments, the decline in EPS and high inventory levels are concerning. The management's optimistic guidance and efforts to mitigate tariffs are positive, but the lack of specific details on tariff impacts and promotional trends introduces uncertainty. The overall sentiment is neutral, as positive elements are balanced by negative and uncertain factors.
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