Manny Chirico - Chairman, Chief Executive Officer Mike Shaffer – EVP, Chief Operating and Financial Officer

Bob Drbul - Guggenheim Securities Erinn Murphy - Piper Jaffray Michael Binetti - UBS Irwin Boruchow - Wells Fargo John Kernan - Cowen Jay Sole - Morgan Stanley Kate McShane - Citi Lindsay Drucker Mann - Goldman Sachs Jeff Van Sinderen - B. Riley

Good morning everyone and welcome to the PVH Corp's first quarter 2017 earnings conference call. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise used without PVH's written permission. Your participation in the question-and-answer session constitutes your consent to having anything you say appear on any transcript or replay of this call. The information being made available includes forward-looking statements that reflect PVH's view as of May 24, 2017 of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is a subject of this call. These risks and uncertainties include PVH's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations. Therefore, the company's future results of operations could differ materially from historical results or current expectations. PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings. Generally, the financial information and guidance provided is on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's first quarter 2017 earnings results, which can be found on www.pvh.com and in the company's current report on Form 8-K furnished to the SEC in connection with the release. At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH.

Thank you, Jennifer. Good morning everyone. Joining me on the call this morning is Mike Shaffer, our Chief Financial Officer and Chief Operating Officer, and Dana Perlman, our Treasurer, Senior Vice President of Business Development and Investor Relationship. Our strong first quarter performance exceeded our expectations and demonstrated our ability to continue to deliver against our strategic and financial plans despite the ongoing challenging macro-environment. We grew first quarter non-GAAP EPS earnings 17% on a constant currency basis. Our performance during the quarter was driven by the momentum across our Calvin Klein and Tommy Hilfiger businesses with our international businesses continuing to demonstrate outsized performance. Our European and China businesses continued to be our healthiest markets. And our North America business performed in line with out plans. Strength has been across all distribution channels, wholesale, retail and our digital channels with our digital e-commerce business continuing to be our fastest growing distribution channel with revenue growth in excess of 20%. Moving to our brands, let me begin with Tommy Hilfiger. We continue to experience positive momentum around Tommy Hilfiger and its health and relevancy continues to be exceptionally strong with the global community. We are pleased to have signed Gigi Hadid as our women's brand ambassador for another two seasons. As I had said before, we continue to be extremely pleased with the response from customers for both our women's business but the broader impact the partnership has had on the overall brand. The Gigi partnership has created a halo effect across all women's categories and generated double-digit sales growth in our women's business across all regions. From a business perspective, overall revenues for Tommy increased 9% on a constant currency basis and earnings were up 25% on a constant currency basis for the quarter. Our revenues were driven by the outstanding performance of our international businesses, which increased 19% on a constant currency basis for the quarter. Tommy Europe, which has been our outstanding performer and continues to be a stand out, all major European markets are performing demonstrated by a double digit comp store sales increase in the quarter which was above our expectations driven by full price selling. As strong as our retail business has been, our wholesale performance continues to see tremendous strength with strong sell-through season to-date. As I mentioned last quarter, our Fall 2017 European order book has been frozen at a 10% increase versus the prior year. We are seeing strong growth across all our divisions, particularly in men's and women's jeans and women's sportswear. Moving to Asia. Tommy Asia, led by China, continues to perform well as we leverage the business with our PVH China platform and drive product, marketing and business productivity initiatives to support the long-term growth for the brand going forward in the market. Additionally, our Japan business continues to see steady progress in its turnaround efforts as we continue to improve upon 2016 productivity improvements. In North America, Tommy saw another strong quarter of men's performance at wholesale. We are pleased with our outperformance relative to our competitors during the quarter. The transition to women's wholesale business now run by G-III is also performing well at retail and we are optimistic about the growth prospects for our women's business. Shifting to retail. During the quarter, we saw some stabilization in international tourist traffic in our outlet store and we saw comparable sales growth improve to a decline of 4% during the quarter. During the quarter, we did see some improvement in our Florida business, however the border stores for both our Canadian and Mexican border stores continue to be under pressure. Moving to Calvin Klein and focusing on the brand. Calvin continues to capture compelling brand and cultural relevancy through its focus on digital consumer engagement, elevated brand imagery and strong digital advertising campaigns which have created impactful interactions with consumers. Over the past few months, we have seen a strong reception in engagement with our men's underwear campaign featuring the Moonlight cast. And most recently with our women's Intimate campaign featuring a wide range of actresses and models, including Lauren Hutton, Kirsten Dunst, Maya Hawke and others highlighting our latest tailored bra product as part of our effort to continue to elevate and drive our tailored bra business. As we look to fall 2017, we see some exciting new launches across our product categories, including fragrance. Unfortunately I can't provide any sneak peeks quite yet but we look forward to an exciting fall from a marketing and consumer engagement point of view and will share that on our August call. From a business perspective, Calvin revenues increased 6% on a constant currency basis for the first quarter, reflecting strong global trends. Our revenues were driven by strong topline growth out of Europe and China with North America performing in line with plans. EBITDA on a constant currency basis was up slightly for the quarter despite a $7 million planned increase in marketing expense and creative leadership changes that we have previously discussed with you. As a reminder, we should be lapping these expenses as we approach the fourth quarter of this year. Moving to Europe. Results continue to demonstrate outstanding performance, both topline and bottomline and I couldn't be more pleased with the direction of the European business with comparable sales up double digits and strong sell-throughs across our wholesale channel of distribution. As we discussed on last quarter's call, our fall 2017 order book is up north of 25% for Calvin Klein and the strength of the business continues to be seen across distribution channels for all major markets and across all product categories with significant acceleration in both jeans and the underwear category. Calvin Klein Asia continues to perform well with China outperforming our other markets across all product categories. While China continues to outperform, the negative geopolitical news out of North Korea have had a negative impact on our business there. Finally, moving to North America for Calvin. We continue to see healthy growth across our wholesale channels, in line with our plan despite significantly reduced department store open to buy plans versus last year on a macro basis. Our Calvin Klein North America retail business experienced a negative 5% comp, in line with our plans. Our Heritage brands. The Heritage business revenues declined 3% for the quarter, principally resulting from a planned shift in timing of shipments from the first quarter to the second quarter as compared to the prior year. Comparable store sales were flat in our Heritage retail business and on plan. EBIT decreased slightly in the quarter due to the planned shift in shipments which offset the gross margin improvements we saw across the business. We feel our Heritage business is very well-positioned as we move into the second half of the year. That's a good segue into our view of the balance of the year. While we continue to take a prudent approach to planning our 2017 business in light of the uncertain global retail landscape, we were pleased to have raised our guidance for the year. Our international businesses continued to see nice momentum quarter to-date with Tommy and Calvin international comps running up mid single digits with strong performance continuing to come out of China and Europe. The environment in North America continues to be challenging with traffic trends and the department store landscape on the pressure which we believe will continue throughout 2017. Comps for Calvin Klein North America and Tommy Hilfiger North America are trending down low single-digits quarter to-date with the Memorial holiday coming this weekend. Overall, we feel we are very well positioned for the balance of the year and believe given our underlying brand momentum and the strength we see in our international businesses that we can continue to outperform our financial plan. And with that, I will turn it over to Mike to quantify the first quarter and the year.

Thanks Manny. The comments I am about to make are based on non-GAAP results and are reconciled in our press release. Our reported revenues for the first quarter were up 4% from the prior year and exceeded our guidance. On as constant currency basis, first quarter revenues increased 5%. Tommy Hilfiger revenues were ahead of guidance and up 9% on a constant currency basis excluding a negative impact of 3% related to foreign currency. The Tommy Hilfiger revenue increase was driven by strong international performance, including a 14% comp store increase in international comps as well as a full quarter of revenue from our Tommy Hilfiger China business which we acquired in the first quarter of 2016. The international increase was partially offset by a decrease in revenue worth approximately $20 million due to the transfer of the North America women's wholesale business to G-III in the fourth quarter of last year. Our Calvin Klein revenues were ahead of guidance and up 6% to the prior year on a constant currency basis, excluding the negative impact of 1% related to foreign currency. Negatively impacting revenues versus the prior year was the deconsolidation of our Mexico business which was worth approximately $15 million. Calvin Klein international revenues increased 13% on a constant currency basis, excluding the negative impact of 2% related to foreign currency with strong performance in Europe and China. Heritage revenues for the first quarter were down 3% as guided. Our non-GAAP earnings per share was $0.05 better than the top end of our previous guidance. The EPS beat was driven by a $0.06 business beat partially offset by $0.01 unfavorable FX. For the full year, we are currently anticipating that we will be negatively impacted by $0.35 per share due to foreign exchange. We have raised our guidance to reflect the stronger Euro and Pound, partially offset by a weaker Canadian Dollar and a weaker Brazilian Real. For the full year, we are projecting non-GAAP earnings per share to be $7.40 to $7.50 which is $0.10 higher than our previous guidance and reflects a $0.05 increase due to favorable FX and a 5% increase due to stronger business. If we exclude the negative impact of FX of $0.35, we have constant currency earnings per share growth of 14% to 15% over the prior year. Overall we are projecting constant currency revenue to grow approximately 5% excluding the negative impact of 2% related to foreign currency. 2017 revenues would be negatively impacted by approximately $70 million related to our Mexico deconsolidation and approximately $80 million related to the transfer of the Tommy Hilfiger North America wholesale women's business. 2017 revenues will be positively impacted by a net amount of approximately $30 million related to the 2017 being a 53 week year, offset in part by the negative impact of the timing of the Chinese New Year. Overall operating margins are expected to increase approximately 30 to 40 basis points on a constant currency basis and to increase approximately 10 to 20 basis points on an as-reported basis. We project Calvin Klein revenues to grow 7% on a constant currency basis excluding the negative impact of foreign currency of 1% and including the negative impact of the Mexico deconsolidation. We are planning Calvin Klein operating margins to be relatively flat on a constant currency basis and to decrease 30 to 40 basis points on an as-reported basis. Our Calvin Klein earnings will be negatively impacted in 2017 mostly in the first half of the year by the continuation of the investments made in the latter part of 2016 related to brand investments in advertising and creative leadership changes. Tommy Hilfiger revenues are planned to increase 4% on a constant currency basis excluding the negative impact of 2% related to foreign currency and including the negative impact of the transfer of the North America wholesale business. Tommy Hilfiger operating margins are planned to increase about 100 basis points on a constant currency basis and to increase about 80 basis points on an as-reported basis. Our Heritage business is planned to have relatively flat revenues versus the prior year. Operating margins in our Heritage business are planned to increase about 20 basis points. The impact of foreign currency on our Heritage business is relatively immaterial. Our corporate segment expenses are planned to increase about 15%. The increase reflects low single-digit growth of our overheads as well as startup losses associated with new businesses. Interest expense for the year is planned to be at about $120 million compared to the prior year amount of $115 million. The increase is primarily the result €350 million bonds issued in June 2016. In 2017, we are planning to pay down about $250 million of our debt. Stock repurchases in 2017 are planned to be between $200 million and $250 million. And our tax rate for the year is planned at about 17.5% to 18%. Second quarter non-GAAP earnings per share is planned at the $1.60 to $1.63 and includes $0.07 of estimated negative impact from foreign currency. Excluding this negative impact, we are expecting earnings per share to increase 14% to 16% for the second quarter. Included in the second quarter is a planned $20 million increase in marketing expenses over the prior year, primarily in Calvin Klein. Revenue in the second quarter is planned to increase 7% on a constant currency basis excluding 2% for foreign currency. Negatively impacting revenue in the second quarter 2017 is the Mexico deconsolidation and the transfer of the Tommy Hilfiger North America wholesale women's business. Calvin Klein revenues are planned at a 8% constant currency increase, excluding 2% related to foreign currency. Tommy Hilfiger revenues are planned at a 4% constant currency increase, excluding a negative impact of 3% related to foreign currency. Heritage brand revenues are projected to increase 10% due to the timing of shipments, which move from quarter one into quarter two when comparing to 2016. And finally, interest expense is projected to be about $30 million and taxes 20% for the second quarter. And with that, we will open it up for questions.

[Operator Instructions]. We will go first to Bob Drbul with Guggenheim Securities.

Good morning.

Good morning Bob.

Manny, when you look at the outlook internationally and you look at the strong order book for Tommy and Calvin especially in Europe, how confident are you in the order book, especially with some of the macro events that have occurred in Europe? And then the second question, can you detail a little bit around the digital growth being the strongest area? What's driving that and the opportunities that you see there?

Sure. I am very confident, very, very confident about the order book for the balance of the year. The trends have been, the order, as you know in Europe, orders really do stick and our sell-throughs, more importantly in department stores have been outstanding and that's been really at full price selling. So if anything, we are seeing retail is pulling goods earlier than the initial shipments that we have had and we have seen our direct business, EDI replenishment kind of business also accelerate. So I think the European wholesale business, we are very confident to see that moving forward. And then I guess our retail trends in Europe in our own stores, both for Calvin and Tommy, are riding up double-digits. So we are very confident that the brand momentum continues. We haven't seen any significant impact based on some of the terrorist geopolitical activities that have gone on in Europe, if that's what you are referring to and most of news from a political point of view has been positive as well. So there hasn't been as much uncertainty and disruption in Europe. So Europe continues to look like a real bright spot for us as we go forward. On the digital side, our job as brand managers is to make sure that our brands are well-positioned and in the appropriate channels of distribution. And right now, we are seeing stronger growth in the digital channels because that's where the consumer seems to be voting to shop, particularly for and what I would say is what we are really seeing is not so much shopping for fashion product, but really shopping more for the commodity or replenishment kind of product, highly profitable business online. And that's through our own e-commerce website and with some of our key partners, be that macys.com or some of our European retailers and then a number of the pure play retailers online as well. So our brand continues to be very much in demand in that channel of distribution.

Great. Thank you very much Manny.

Okay.

We will go next to Erinn Murphy with Piper Jaffray.

Great. Thanks. Good morning and congratulations. I had a question, Manny, for you. As we talk about the North American wholesale landscape and clearly the environment of challenging foreclosure and level of inventory and the promotional activity in the channel overall, if you could just help us think about, over the next 12 to 24 months, how does your business mix in North America look from a wholesale perspective as you think about U.S. department stores, off price, specialty and then digital and some of the trends you were just referencing?

Okay. I think, well a couple of points. It's a volatile environment. But I think what we are seeing is, obviously digital growing and digital meaning both our brick-and-mortar partners as well as the pure plays, we are seeing significant growth there for our brand. I guess I would make take the point that if you think about a lot of the department store closures that is going on and Macy's is talking about closing about 100 doors and some of the other department store players. Our two big brands, Calvin and Tommy, really don't play in those closed stores in a significant way. We tend to be in the top 60% percent of doors, 70% of doors for most of our key department store account. So the store closures, per se, haven't had a dramatic impact on our Calvin and Tommy business. On the specialty side, specialty continues to grow for us overall. Relatively speaking, it's a much smaller component of the business but a fast-growing component of the business with some key influencing retailers that, I think, really have a positive impact on your brand, especially with the younger consumer. The other area I would say is on the off-price channel, clearly off-price is growing. We try to really manage and balance our distribution into those channels. But as I look out 24 months, I think there is a good likelihood that digital will be a higher percentage of our business than it is today. Off-price and specialty will also be somewhat of a higher percentage than what they are today. And given what's going on in the department store channel, it will continue to shrink to some level, specially with some tenuous players that are out there right now that we continue to watch closely.

Okay. That's very helpful. And then just with the Calvin Klein brand in Europe, you have talked historically about seeing that brand to about $1 billion over time. Could you just talk about some of the new category traction that you are seeing right now that's helping you get confidence towards that longer term target? And then, is there any structural reason like Calvin wouldn't be as big as Tommy in Europe over time, just given that you still have a lot of white space as to new category development?

Sure. I think the areas that we are seeing new categories, if you would want to call it, is accessories for us, which was a very tiny category when we took over the business, is much larger today and will continue to expand. On menswear business, men's sportswear, excluding jeans, so the refined sportswear and tailored component of the businesses also continues to grow at a very high percentage. But relative to Tommy is about 10%, 15% the size of the Tommy men's sportswear and tailored business. So clearly, there is a huge opportunity in men's sportswear to grow. The other big area, I think, of growth would be the women's area where we have no refined sportswear in Calvin today. It's really just, from apparel point of view, it's really just the jeans opportunity. And the other area where we are raring is the performance area, that whole at-leisure area, which is very big for us in North America, growing very fast for us in Asia. We will be introducing that next year as well. So when I look at Calvin as a brand and compare it to Tommy, everywhere else in the world, the Calvin business tends to be somewhat bigger than Calvin, anywhere from 150% to 300% in some parts of Asia. So clearly I don't see any reason why Calvin cannot be as big as Tommy over time. The key for us would be, I think the big key for us to get to that $2 billion market we would like to reach, the $1 billion mark is within reach for us with jeans, underwear, accessories, men's sportswear. To get to the $2 billion mark, we really have to take advantage of the women's opportunity that could be significant for us there. And I don't think we wouldn't launch that until 2018. And the other big opportunity obviously is in the performance area which I think could also be a very big area for us. So we are very enthusiastic about the growth in Europe and see it as a real opportunity for us over the next five years.

Great. Thank you guys and all the best.

Thank you.

We will go next to Michael Binetti with UBS.

Hi guys. Good morning. Congrats on a great quarter. I don't want to go too much into it, but on Heritage, that down about 3% in the first quarter up to 10% in the second quarter shift, that lands on about plus 3% in the first half. The guidance for the year is flat. So you are planning to back half down 3%? I am trying to understand a little bit more what's going on in that business? Where did that growth come from? You did raise the year a little bit. Would you mind talking about where the upside is coming from? And then maybe your assumption on what rolls off in the second half out there in the first half?

Sure. We have seen, I guess, three areas. We are seeing really strong business in our sportswear areas with first the IZOD business, particularly in the mid-tier and the Van Heusen business also in the mid-tier, mid-tier being the Kohl's, Penny's and the like. And that business has been very strong and we think we will see good performance throughout the balance of the year. In addition, our core intimates business led by Warner's continues to really be a very strong player for us. We have seen strong growth both in the mid-tier and in the mass market growth with Walmart and Target. So those are the two big areas that we growth and I think we could see better performance than potentially we are projecting if the trends continue through the second quarter into the second half of the year in Heritage. So we are feeling good about that business and we are managing the inventories tightly. As you know that's really a North America driven business. So we are really watching our inventories there given the volatility in the channels. But we seem to be outperforming the competitive set.

Okay. That's very helpful. And then backing up for second, just looking more broadly at your guidance for the company. It also implies that revenues only about 2% growth in the back half, off of over 4% in the first half. So as we start to look through some of the detail and North America sounds more stable, the international order books, I think, for the fall are much stronger than even the spring, you have got FX at your back now for the first time in a few years and then some of the headwinds from Tommy, G-III and Mexico start to go away in 4Q. So I guess the question is, what am I missing that the comparable would be lower in the second half versus first half? Just help us understand at a higher level the slower revenues in the second half?

Sure. Look, I think the biggest thing is, we are not planning for the retail comps in Europe and Asia to continue at such a high rate for the balance of the year. We have the inventory and we have the supply chain to continue to feed those businesses. But we are not planning Europe, both for Calvin and Tommy, which is growing, which grow in the first quarter at double digits to continue anywhere near that, probably planning at low single digits for the second half of the year. And we are not planning our China business, which is growing mid to high single digits, we are not planning those businesses to grow at that rate. We are planning those to grow at low single digits as well. So I guess I would leave it at that and one of the reasons we feel really confident about our guidance and how we are positioned for the year is I think with our retail businesses we are taking a prudent approach about how to plan those businesses. And I think there is opportunity to outperform in the second half of the year.

Okay. Great to know. Thanks for all the help and congrats again.

We will go next to Irwin Boruchow with Wells Fargo.

Hi. Good morning and let me add my congrats as well.

Good morning.

So Manny, you have talked over the past several months on the potential border tax implications. I am just kind of curious, as you think about potential M&A for your business, would you need to see a resolution on that topic before you feel comfortable to pull the trigger on a potential deal? Or have you gotten more comfortable on the topic that you aren't as concerned as maybe you were a few months ago? Just curious how you think about those two dynamics together as it pertains to PVH?

Well. I guess I feel more confident today that the likelihood of the border tax, particularly the way it was initially drafted is not going to recur. And I don't have a crystal ball. I have been in Washington. My entire career, before this year, before this last 12 months, I think I have been in Washington three times. In the last 12 months, I have been in Washington multiple times. And I don't know if it's six, seven times meeting with different members of Congress and meeting with the administration when possible to really try to take a leadership position on this topic because I just think it's so bad, not only for our industry but I think it's just so bad for the economy in general. Since the consumer represents two-thirds of the economy, I think the last thing we want to do is put an import tax and start picking winners and losers as a country as we go forward. So I really tried to be front and center about it. To answer your specific question, I think it does give me pause when I think about a large multibillion-dollar acquisition. To have so much uncertainty out there about the border tax, but also capital structure. Is interest deductible? And if it is, how do you -- I think we have been good at managing acquisitions and I think the financial team has been excellent at managing the balance sheet when we have made financial transactions like Tommy and Warnaco, the big deals and have done in a way that is highly efficient but also protects the company as we go forward. It's hard to do that when you are not sure what the rules of the road are as you go forward. So a long-winded answer to, I think it does give me a little bit of pause to do a big deal and to pull the trigger on a big deal. But we continue to take back licenses, make investments internationally, do what's necessary to move forward the Calvin and Tommy businesses in particular and take care of opportunistic acquisitions in the hundreds of millions dollar value, I think we will continue to look at that strongly. That again, if a great opportunity comes along that is more expensive than that, it will force us to be maybe a little bit more conservative in capital structure. I don't think it will stop us from doing a deal. So I just feel that right now the way the wind is blowing in Washington, the likelihood of something like a border adjustment tax to be in a tax proposal, if they can even get anything done in Washington, is probably a long shot right now.

Got it. Thanks so much.

We will go next to Kate McShane with Citi.

Hi Kate. I think we lost Kate, operator. Could we go to the next one?

We will go next to John Kernan with Cowen.

Good morning everyone. Thanks for taking my question. Manny, can we talk about the 14% comp for Tommy Hilfiger? And I think it's the best you have put up since 2012. What's the drivers of that? Is it ticket driven? Is it traffic driven? And what do you think the outlook for that in the back half of year looks like?

Okay. It was ticket driven. It was conversion driven. It was not necessarily traffic driven. Traffic was positive but it was positive about 1%, maybe 1.5%. So it was clearly is much more driven, I guess the consumer as they came into the stores, they were more motivated to buy coming in and when they saw the merchandise, they were more motivated to spend and spend at a higher ticket price. A big part of that, I think, had to do with the fact that we didn't need to really promote significantly at all. So that was all very positive. So hopefully that gives you some color, John, as we go forward. So I think to put it in perspective, we saw very similar results in Europe with Calvin. Now Calvin's overall comp wasn't as high as Tommy's internationally and a lot of that has to do with the mix of the business. The Tommy business is probably 75% Europe, 25% Asia where the Calvin business is probably be reverse of that, 75% Asia and 25% Europe. And our European businesses for both were up double-digits and our Asia business was up for both mid single-digits despite having the Chinese New Year have a calendar shift in the first quarter. So very strong for both brands across the board and I think it gives us real confidence as we go into the second half.

Okay. And then just one follow-up. Calvin Klein was up over 13% in the first half of 2016. You are obviously lapping that now. I am just wondering what the outlook for Calvin in North America is as we go into the back half the year, you are now lapping a difficult comparison?

Well, okay, so our planned comp for Calvin and for Tommy for the second half of the year is, the second quarter is probably down low single digit and for the second half is probably down a similar amount, flat to down slightly. So that's how we have the business planned and we are hopeful that given that, you are absolutely right, the comparisons are easier we go into June and beyond that the trend will actually improve the first quarter trend. But we are trying to plan it conservatively.

Okay. Thanks. That's all.

Thanks John.

We will go next to Jay Sole with Morgan Stanley.

Great. Thank you. Manny, you talked about some opportunities to expand the Calvin Klein brand into new categories. As you think about Europe and Asia, can you just talk about, if there are geographies where you are still in market development mode with Tommy and Calvin? And maybe what those countries might be? And what kind of opportunities they represent?

Sure. I think as we have talked pretty much about the Calvin opportunity, we are giving, what I would say, a three-year goal to get to $1 billion. Long-term, we think it is a $2 billion market for us. Today, it's a little bit over $600 million. So for us, when you think about a region that, by far, is the most underdeveloped region for Calvin Klein and clearly give us a huge opportunity with that brand. Both brands have big opportunities in Asia. Tommy's is bigger because it's about 50% the size of the Calvin business throughout Asia. And the opportunity, particularly in Central Southeast Asia, we call it the CSAP area, Hong Kong, Macau, Taiwan, the surrounding areas, that's a license business today, which we would like to operate at some point in time directly ourselves. It's run by a long-term partner that's done a really good job with it positioning the brand. I think if we were operating we would be more aggressive on growth and we can take it to another level. So there is a huge, big opportunity there. And then obviously, for China for both brands just continues to be a big opportunity for us and I think we will continue to see mid to high single digit growth out of China for the next five years. The other area where we don't have an unlock for it today, but we really want to get to it, is Brazil for Tommy Hilfiger, Brazil as a market for Calvin is very successful, highly profitable. We have an outstanding management team and operating structure in Brazil. The Tommy business is operated in a joint venture with a partner that we don't believe can take the business to the level we needed to take it to. And we would like to work out of that arrangement over time for us and we think that's an opportunity. So we think that there is somewhere in the neighborhood of $100 million to $50 million sales opportunity just in Brazil and then of course that opens up the rest of South America. So that's where we see the big growth opportunities geographically for the brand. We think North America will continue to be a solid performer. It will be a market share gain. And the opportunity for Tommy in North America is on the women's side which G-III is operating. They are about 25% the size of Calvin business in women's in North America. So there is a real opportunity somewhere in the neighborhood of $500 million to $750 million of sales on a wholesale basis that could be added to the business over the next five years and collecting royalties there would be very profitable for us and obviously profitable for G-III and we think they are the right partner to execute that.

Great. That's super helpful. Maybe if I can ask one more about e-commerce. So you touched on some of your investments and CapEx this year that are deployed toward e-commerce. Can you talk about some of the achievements in the quarter and some of the milestones looking forward that you hope to achieve? And what you plan to [indiscernible]?

Yes. I think both for CK and for Tommy, I think there continues to be growth opportunities there for us. We have experienced significant growth and I think that should continue. I think couple of things. I think we really want to grow with our retail partners, the macys.com, nordson.com, Kohl's, JCPenney. We want to grow with Heritage brands and we want to grow with our Calvin brand. And we are working closer and more closely with them. You could see it in the results. A big part of our growth, despite what's going on in the market with those two brands, has really been on the retailer's dotcom sites making investments in presentation, driving consumers to their sites to transact product. It is a very profitable model for us and for them. But it's really profitable for us on a wholesale basis to service that business and work with them to back up the inventory. And as they get more of the efficiencies of running that online business with their brick-and-mortars, the markdown savings that we are both not totally taking advantage of, I think that businesses just becomes more profitable as well move forward. The other play that we have globally is with some of the pure plays in Asia with Ali Baba, Tmall and JD.com. They are growing obviously over 20% each. They are becoming meaningful volume at a highly profitable level, given the business model that's there which is much more a wholesale model for us the way we look at it. In the United States with Amazon, our core commodity business has really continued to excel there and will continue to excel. The consumer likes shopping there. Brands are well-positioned in those channels and we are seeing double-digit growth with them as well. So those are the key milestones, the relationships, the learnings that we are getting. The infrastructure that we are building is only making us more comfortable with that business as we go forward. And we are really focused. We really have now, over the last 12 months, focused dedicated teams focusing on that channel of distribution, direct to the consumers ourselves and through our partners on a wholesale basis. And we think that's the right model going forward and the most profitable.

Great. Thanks very much. That's really helpful.

We will go next to Kate McShane with Citi.

Thank you. Can you hear me?

Yes. Kate, how are you? I am glad you are still with us.

I am. I am sorry about that. I think there was some technical issue. But I just wanted to ask a question on inventories in the channel, at the outlets and the department store and any detail you could provide around full price selling during the quarter and your expectations for the rest of the year?

Okay. So on the inventory levels, I think you saw, our inventories overall are down 2% despite the sales growth we are planning. So I think clearly we are in a very clean position. We are in a bit of a chase mode right now globally and here also in North America. Inventory levels globally are in excellent position in just about every market. I am not going to micro manage into each one. But overall, when you look at international inventories, fantastic shape. When it comes to the United States, I think it's a little bit more mixed. But on balance, I think you are seeing is with the contraction of open to buy dollars that has well significantly exceeded the negative comp store trends that I think on balance inventories are in good shape in the channel. A lot depends in the next couple months, how we see the Father's Day and how we see that will progress, but there is not bi callouts right now about any inventories in the channel. Outlet, in general, our inventories are in fine shape. I would say that's become a highly promotional channel today and I think because there has been such contraction in the open to buy dollars, there is a lot more availability of merchandise in the outlet channel which has put pressure on margins overall. But if you look at it, we have kind of managed it really well. But there has been some pressure on margins, just to match the competitive environment and the promotions we see in the channel. So I hope that gives you some color.

That's helpful. Thank you very much.

We will go next to Lindsay Drucker Mann with Goldman Sachs.

Thanks. Good morning everyone. I wanted to ask on Tommy men's. I was curious if you could clue us in on any initiatives you might have from a marketing or product development piece for the fall? I know a lot of the focus and commentary has been on the great success that you just had on the women's side. But I just wanted to dig in a bit more on how you are thinking about evolving the marketing or other aspects of the brand for later on?

So if you think about the Tommy brand and the strength of the brand, the strength historically has been our men's sportswear business. And we have made, as you said, we have made a concerted effort to invest the last 12 months and continuing in the next two seasons behind the women's campaign and focused on the Gigi Hadid's campaign which has had a tremendous impact on our women's business but also on the brand overall. I think it's really moved us younger and we have not seen any negative impact from that campaign on the men's business. In fact, we believe it's actually been enhancing to our men's business overall because we have gone younger. I think what you are going to see going forward and I can't speak about it is campaign as we get into second half of this year for holiday and beyond where there will be a focused campaign with a celebrity endorser on the men's side of the business as well to balance some of the marketing that we have had gone on. I think the focus would probably be on tailored and underwear similar to the Rafael Nadal campaign, because I think that's a good way really to influence men's shopping. The team is working on it and we just can't talk about the talent that might be involved.

One more.

Sure.

On the cotton side, a couple of brands have called out better sourcing environment despite some recent moves in cotton just based on how their negotiations with factories are going. I was curios if you could just talk about how you are thinking about average unit cost ahead?

I think for the next six months, relatively flat to slightly down. A little longer perspective, if global demand continues to be as strong as it is, I think we might see some slight increase in cost as we go into spring 2018. I think all very manageable given what we see right now ahead of us. So I don't see a lot of noises around sourcing cost in general as we move forward for the next 12 months.

Great. Thank you.

With that, operator, we will take one more question and then wrap it up so we can get back to try to move the business forward.

We will go next to Jeff Van Sinderen with B. Riley.

Good morning. I wondered if you can just kind of speak to us on your latest thinking around your domestic store fleet? What you think the right number of stores is? Maybe remind us how much the store fleet comes up for renewal each of the next two years? What are you seeing in terms of landlord willingness to make concession? Is there any shift there? Would it make sense selling toward a higher concentration of certain types of locations or stores or footprint or prices in the future? Thanks.

So I guess when we think about our outlet business, which is predominantly where we operate in North America and I think that's what you are referencing, we do run businesses that has predominantly shorter leases on our lesser revenue driven stores. The highest buying stores, the most profitable stores tend to be very profitable and even though they have had some declines over the last 12 to 24 months, still remain very profitable. Those stores tend to have longer leases. The shorter leases are in the lesser profitable stores but they still make money. At this point, we have and continue to close any stores that don't perform well and there is very little growth in terms of outlet business in the U.S. in terms of new store growth. There is really not a lot on the comp. In terms of occupancy, we continue to drive our rents down. That's the benefit of having these short-term leases. If the market deteriorates and if there is an opportunity, we do take it and we do go in and get rent reductions. We are also one of the larger tenants with those clientele.

I guess I would just add two points. I think as we look at store size going forward for stores that do open, we are looking for smaller stores that are more technologically advanced, more features in store where we can ship the customers at home and give them a broader range of product that doesn't necessarily have to be on the floor. Secondly, in the full price area, we do have a number of stores. We are seeing some potential for better deals as we move forward and the economics seem to be working through as we start to have some discussions with landlords. Like anything else, the A and A-plus centers are still highly occupied, still in significant demand and with Calvin and Tommy, we are usually looking, if we are going to open, as we do open regular price, full price stores, we do look for the best real estate to present the brands in. So that's always going to continue to be a challenge. And I guess I would just make the last point is, over the last three to four years we have been very proactive on our retail portfolio. Four years ago, we made the decision to sell our Bass business. We don't believe moderate priced brands have a long future in the outlet store environment, no matter how good the brands are. It's just a challenging environment to compete against international designer brands for the most part in those centers. And we also closed our IZOD retail portfolio. So between that, that's almost 300 stores that we closed very efficiently and did it in a timely manner, given what's going on in the retail world and I think we are much better off because of it. So we have tried to be ahead of the curve on some of these things as we looked at it.

With that, I am going to close. I am sorry. With that, I am going to close the conference call. Thank you all for joining us. We look forward to updating you in August about our second quarter results. Have a great holiday weekend and a good day. Take care.

This does conclude today's conference. We thank you for your participation.