Manny Chirico - Chairman, Chief Executive Officer Mike Shaffer - EVP, Chief Operating and Financial Officer Daniel Grieder - CEO, Tommy Hilfiger, PVH Europe

Erinn Murphy - Piper Jaffray Bob Drbul - Guggenheim Securities John Kernan - Cowen Michael Binetti - UBS Kate McShane - Citi Christian Buss - Credit Suisse Ike Boruchow - Wells Fargo Heather Balsky - Bank of America Eric Tracy - The Buckingham Research Group Incorporated

Good morning, everyone. And welcome to the PVH Corp's Second 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 to reflect PVH's view as of August 23, 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 second quarter 2017 earnings release, 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, Glenn. Good morning, everyone. Thank you for joining us on the call. Joining me on the call is as usual Mike Shaffer, our Chief Financial Officer and Dana Perlman, our Treasurer and Head of Investor Relations. Also I have two guests that hopefully can answer some specific questions you may have. Daniel Grieder who runs our Tommy Hilfiger business globally as well as oversees all the operations of our European business is here, and Ken Duane, our CEO of PVH Heritage Businesses and our North America wholesale business is also here. So going to the results, I am pleased to report that our strong second quarter performance exceeded our expectation and demonstrated our continued ability to deliver against our strategic and financial plan despite the challenging global macro environment. Tremendous strength continued across all of our businesses with our international businesses demonstrating outsized performance, particularly China, Europe and Japan which are our healthiest markets. Meanwhile, our North America business performed in line with our plan but the US market continues to be highly competitive and promotional. Overall, in the second quarter we grew revenue 7% and our EPS came in at plus 15%. Importantly, in our second quarter results we had a planned $25 million increase in brand marketing investment versus last year related to both Calvin Klein and Tommy Hilfiger, which we believe will continue to drive market share gains and allow us to capitalize on each brand's growth opportunities into the second half of this year and over the next few years. When we look at our performance across channels, we generally saw strength across all channels be it wholesale, retail or our digital channels. We continue to focus on diversifying our distribution through our focused efforts around digital and full price specialty partners. Digital continues to be by far our fastest growing distribution channel, and we are continuing to invest there both digitally and we also are focusing on initiatives to drive both our owned e-commerce site as well as our third party partners' businesses. Moving to our brand let me start with Tommy Hilfiger. The brand just continues to experience significant demand and we are seeing broad based strength across all businesses. I am excited to report that the Tommy Hilfiger brand relevance continues to improve. From Gigi Hadid, as our women's brand ambassador to our newly announced ambassador, the Chainsmokers who will appear as the global brand ambassadors for all Tommy Hilfiger men's categories beginning in fall 2017. The partnership reflects our strategic commitment to continuing the strong global growth of all of our men's business and attempting to bring newer, younger fans to the brand. We believe that these brand ambassadors will help us drive performance in our global growth categories, with specific emphasis on women's apparel, accessories and men's tailored. Moving to the business, we continue to be extremely pleased with response from consumers and are benefiting from market share gains in each of our major markets. Overall, revenues for Tommy increased 4% in the quarter and earnings were up over 8% in the quarter. This growth was driven by driven by outstanding performance in our international businesses. International revenues increased 9% fueled by the continued strong performance in Europe and Asia. International retail comp sales increased 6% in the quarter with very strong retail performance in China and Japan. Our Tommy Europe results were outstanding and continued to be a standout for us. All major European markets continue to demonstrate outstanding performance. Based on the strength of our spring summer season sell-throughs, we also saw healthy gross margin improvement during the quarter. As I mentioned last quarter, our fall 2017 order book finalized at a 10% increase versus the prior year. And we are pleased to report that our spring 2018 season is projected to increase over 10% as well. The spring order book results continue to exceed our expectations and we are quite pleased with the broad based strength across all product divisions and across just about all retail European markets. Tommy Hilfiger Asia led by China continues to perform well as we continue to execute to strategic priorities we set in place when we fully acquired this business last year. We see significant long-term growth opportunities for the Tommy brand in this critically important market. Additionally, our Japan business continues to see positive momentum and excellent results as the brand repositioning in this market is paying huge dividends for us. Moving to North America. Tommy saw another solid quarter with strong results with our men and women's department store business in a challenging retail environment. We are pleased that our outperformance relative to our competitors continues through the second quarter and into the third. Shifting to North America retail, we saw flat comparable store sales for the quarter in North America as we saw an improvement in traffic trends including stabilization in international tourist traffic during the quarter. Moving to Calvin Klein. Speaking about the brand Calvin Klein continues to capture compelling brand and cultural relevancy through its focus on digital consumer engagement, elevated brand imagery and strong advertising campaign. From a brand and marketing perspective we announced the launch of our fall 2017 Calvin Klein 205 West 39th Street global advertising campaign and have recently reopened our Madison Avenue flagship store featuring our floor-to-ceiling installation by the world- renowned artist, Sterling Ruby. The reopening marks the arrival of Chief Creative Officer Raf Simons debut of the fall 2017 Calvin Klein 205 West 39th collection in the store. This new collection product is also being delivered to key retail partners in over 30 points of sales around the world. As a reminder, some accounts include Bonnie, Saks, Galeries Lafayette, Dolby Street, Isetan and Lane Profit. Early initial sell-throughs have been positive and we have more results to talk to you here as we go forward in the future. In the fragrance area we have two new launches. Obsess just recently launched and it -- it leverages archived photos and film of Kate Moss and Mario Sorrenti from the original Obsession campaign which aired over 15 years ago. Additionally, in the fourth quarter we will be launching a new campaign for our Eternity fragrance which will be showcasing new celebrity talent. I am pleased to note that we are starting to see our fragrance business begin to rebound around the world. We are also excited to report that we have two international Calvin Klein flagship store opening in the third quarter. One in Shanghai and one in Dusseldorf. These stores will be offering a wide assortment of products including jeans, sportswear, underwear, tailored clothing and performance product. As we move further into fall into holiday, we will continue to roll out our jeans and underwear marketing initiatives with an enhanced direct-to-consumer focus to drive our business as we enter the all important holiday selling season. From a business perspective, revenues at Calvin increased 8% in the second quarter reflecting strong global trends with 20% increases coming from our international business. In particular, we continue to see strong top line growth out of Europe and China with North America performing in line with our plans. International retail comp store sales increased 6% in the quarter. EBIT declined about $10 million for the quarter as a result of planned $20 million increase in marketing and creative leadership expenses as we've discussed with you in the past. As a reminder, we should we be lapping these expenses as we move through the second half of the year particularly in the fourth quarter. Our international business has been strong. Calvin Klein Europe has been outperformed. I could not be more pleased with the direction of the business as results continue to demonstrate outstanding performance both from top line and bottom line perspective. We saw strong sales through across wholesale and retail and continue to experience healthy comparable store sales growth on top of multiple years of double digit comp sales increases. As we discussed on last quarter's call, our fall 2017 order book was finalized at north of 25%. I am pleased to report that the momentum continues with our spring 2018 order book which is projected to be up again over 25%. The strength in the business continues to be seen across all distribution channels from all major markets and across all product categories, jeans, underwear and accessories for both men's and women's. Moving to Asia, Calvin Klein Asia continues to perform well with China outperforming other markets across all product categories. We continue to invest in the business here and see continued momentum in our Calvin Klein jeans business as new and improved product is driving strong sale increases. We've also seen performance from our underwear, performance in accessory business continue to improve across all markets. Overall, that region continues to see strong growth. The one region of underperformance is Korea, which clearly has been pressured by the negative geo-political news out of North Korea which is had a negative impact on the overall Korean business. Calvin in North America continues to see healthy growth across our wholesale business in line with our plan despite significant reduced overall department store open-to-buy plan. Our Calvin Klein North America business experienced the 2% negative comp store sales which are in line with our planned and slightly ahead of our first quarter sales performance. Finally in our Heritage business, we had a strong quarter. Let me remind you that while Heritage's revenue increased 13%, it was principally a result of a planned shift in the timing of shipments from the first quarter to second quarter, as well as some sales moving from the third quarter into the second quarter compared to last year's sales trends. So for the year we expect flat overall revenues from our Heritage business which is in line with our initial plan. Comparable store sales were up 1% in the Heritage business in the second quarter. EBIT increased significantly in the quarter due to the planned shift in shipments and from general improvements in gross margin experienced both at the retail and wholesale businesses. We feel our Heritage business is very well positioned as we move into the second half of the year. Speaking about the full year guidance, we've raised the full year earnings guidance outlook and believe that our brands will continue to drive our second half performance despite the ongoing volatility in the macroeconomic and geopolitical environment. Specifically as a result of the momentum in the business, we continue to make investments in our Calvin Klein and Tommy Hilfiger businesses and we've added $10 million of marketing into the second half of the year relative to the previous guidance to help fuel the opportunities we see ahead of us in these businesses. I'd like to just touch on a little bit on third quarter trends. Our international business continues to see nice momentum quarter-to-date with Tommy and Calvin international comps running up mid single digits, with strong performance continuing to be seen out of China, Japan and Europe. The environment in North America continues to be challenging with traffic trends and department store landscape under pressure which we believe will continue throughout 2017. As such, we are planning the North America business prudently based on the landscape. Clearly, it seems to us based on recent earnings report that a number of our major competitors are experiencing significant sales declines particularly with North America department stores. Contrary to that trend both Tommy Hilfiger and Calvin Klein are growing with these accounts. As we move into the second half of the year, we will be expanding our square footage and growing our sales with this very important channel of distribution, which we believe will help the momentum of the business into the second half. In our own retail businesses, we are seeing some improvement in sales trends as we headed into late July and into August of 2017. Comps accounted by North America are trending now flattish and Tommy Hilfiger North America is trending positively up mid single digit quarter-to-date. We feel quite strongly that we are well positioned for the balance of the year and believe that given the underlying brand momentum and the strength we are seeing in our international businesses that we can continue to over deliver against our financial plans. And with that I'd like to turn it over to Mike Shaffer, who will quantify some of results.

Thanks Manny. The comments I am about to make are based on non-GAAP results and are reconciled in our press release. Our revenues for the second quarter were up 7% to the prior year and exceeded our guidance. Tommy Hilfiger revenues were ahead of guidance and up 4%. The Tommy Hilfiger revenue increase was driven by strong international performance, including a 6% comp store increase, partially offset by a decrease of 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 8% to the prior year and included the negative impact of deconsolidation of our Mexico business which was worth approximately $15 million. Calvin Klein international revenues increased 20% with strong performance in Europe and China. Heritage revenues for the second quarter were up 13% driven by its shift in the timing of shipments from the first and third quarters to the second quarter. Our non-GAAP earnings per share of $1.69 represents growth of 15% over the prior year and included a planned increase of approximately $25 million of marketing compared to the prior year related to Calvin Klein and Tommy Hilfiger. The $1.69 was $0.06 better than the top end of our previous guidance and the beat was driven by a $0.07 business beat and favorable FX of $0.02. Partially offsetting that was a timing of tax expenses which was unfavorable for $0.03 in the quarter. For the full year, we are currently anticipating that we will be negatively impacted by $0.20 per share due to foreign exchange, an improvement of $0.15 when compared to our previous guidance. For the full year, we are projecting non-GAAP earnings per share to be $7.60 to $7.70 were 12% to 13% over the prior year which is $0.20 higher than our previous guidance and reflects a $0.15 increase due to favorable FX, and a $0.15 increase due to stronger business, partially offset by an increase in marketing for Tommy and Calvin Klein of approximately $10 million. Overall, we are projecting revenue to grow approximately 6%. 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 also be positively impacted by a net amount of approximately $50 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 10 to 20 basis points on an as-reported basis and to increase approximately 30 to 40 basis points on a constant currency basis. We project Calvin Klein revenues to grow 8% with operating margins down about 50 to 60 basis points on an as -reported basis and to decrease about 10 to 20 basis points on a constant currency basis. Our Calvin Klein earnings are negatively impacted in 2017 by the continuation of the investments made in the latter part of 2016 related to brand investments in advertising and the creative leadership changes. Tommy Hilfiger revenues are planned to increase 6% with operating margins planned to increase about 90 basis points on an as-reported basis and about 110 basis points on a constant currency basis. Our Heritage business is planned to have relatively flat revenues versus the prior year with operations margins planned to increase about 10 to 20 basis points. Our corporate segment expenses are planned to increase about 15%. This increase reflects low single-digit growth in 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. This increase is primarily the result €350 million bonds issued in June 2016. In 2017, we are planning to pay down at least $250 million of our debt and have stock repurchases of about $250 million. Our tax rate for the year is planned at about 17% to 17.5%. Third quarter non-GAAP earnings per share are planned at the $2.88 to $2.92, or 11% to 12% over the prior year and includes $0.06 of estimated negative impact for foreign currency. Revenue in the third quarter is projected to increase 4% and will be negatively impacted by the deconsolidation and transfer of the Tommy Hilfiger North America wholesale women's business. Calvin Klein revenues are planned at 5% increase. Tommy Hilfiger revenues at 8% and Heritage brand revenues projected to decrease 8%. As a reminder, this was due to the timing of shipments, which move from third quarter to the second quarter. Interest expense is planned to be about $31 million and taxes about 12% in the quarter. And with that, we will open it up for questions.

[Operator Instructions] And we will take first question from Erinn Murphy with Piper Jaffray.

Great, thanks, good morning. I guess Manny for you I was hoping you could address a little bit more about the improving trends that you've seen in back-to-school. I guess your tone was still fairly cautious on the environment overall in North America. So what are the drivers that have really led to that quarter-to-date improvement in both Calvin and Tommy here in North America?

Okay, good morning, Erinn. I guess what we see -- directly we are seeing in our own retail stores first and foremost. We've seen a significant improvement in the trend in the Tommy Hilfiger business which went from a flattish comp in the second quarter to the mid single digit increase. We are seeing traffic improve as well as I think the consumers is really there. We've also seen in the Calvin business positive comp store trend as we move forward. Also from talking to some of our department store partners and what some of them had said on their conference calls I think both Macy's and Kohl's particularly spoke about back-to-school getting off to a strong start. So based on our performance also in that channel of distribution I am starting to feel little bit better about it. Now, it's still very early, it's August 23 today 24 today so I think we have got Labor Day, we have got to see the September trend which really picks up but I think from an inventory positioning point of view, from the gains we are making in square footage at department stores I guess the best example of that is if you go to Herald Square and you see the improvement in space that both Calvin and Tommy are getting, particularly Calvin, new Calvin Klein jeans shop which is almost doubled their footprint in that store. I think you get a sense of the momentum we are seeing in our owned business despite everything you hear about the environment in some of the reported results.

Okay, that's helpful. I mean clearly you are seeing momentum across the board obviously internationally as well. So I guess if I --

Well, I just said -- I didn't mean to cut you off and what we were seeing internationally is the trends continuing. I mean the trends have been pretty spectacular through the second quarter both at Calvin and Tommy. And we are not seeing any slowdown at all on those trends. And as I talked about the order book, we are actually seeing acceleration in the order book as we go to spring.

Got it. So, yes I guess as you sit here now I mean there is clearly a momentum so if the trends were just to continue whether it's organic or even strengthened from here even you are going to be benefiting from currency now. You've spent a lot of time talking about the reinvestments you've made in the business both in the second quarter you obviously planned more in the third or the back half as well. I guess from here if the business strengthened how do you think about that incremental investment? Do you plan to further invest or would you allow to any potential upside to flow through? Just trying to understand how are you thinking about what still need for ongoing …

Sure. I think we will do what we've consistently done in the past and we've done through the first half of the year is as the business continues to outperform, we will continue to invest in the brand but also at the same time we will be looking to raise our financial projections and our goals in balance. We want to continue to fuel the growth particularly as we look out to 2018 and beyond and I think where other people dealing this tough environment of pulling back and taking their foot off the gas from a marketing perspective we think this is a time now to have a louder voice, gain a greater share of voice in the market. So I think we'll balance it as we’ve always have done with the real goal to drive momentum.

We'll go next to Bob Drbul with Guggenheim.

Hi. Good morning. On the Calvin Klein on the 25% order book as you look at it, like what's really happening there? Like it was like by market, is it just taking massive amounts of share in various markets? Can you sort of peel that back a little bit more for us?

I can do a reasonably good job but since Daniel is here I’m going to just ask Daniel to speak about some specificity but don't get too specific Daniel.

Okay. There are several issues happening. First of all, I think it starts with the product we have -- that we have redone over the past few years. The product in all the divisions, we have improved. We took a lot of insights, consumer insights into the product and also the second part is in the distribution. We have cleaned up the distribution. We were repositioning the brands in all the department stores. We gained really square foot in the department stores and if you add those combination together we are just outperforming our competitors and are gaining market share.

And some of the key markets if you just can touch on them, really seeing big growth.

Yes. I have to say that all the markets are growing even those which we do -- did expect less if you talk about the Russia and even Turkey, even these markets are growing, but I would say the main markets in the growth is Germany is the UK, is France and Holland. And I think again all the markets are strong and not one market is down.

Yes. The only thing I would is I think if we would have been talking about this business momentum the last couple of years in Calvin in Europe in particular to a great extent has been driven by apparel but really our underwear business has been off the charts in those markets and that business continues to be very healthy and grow but what's really satisfying to us is we are really seeing the influence of Raf Simons and Pieter Mulier in the jeans business as we are going to spring and the reception in the market. So the growth in jeans is just really started to outstrip the growth in underwear. And that I think is just great for the brand and that is opens up broader categories of product and should help us our sportswear businesses as we move forward as well. Thanks, Bobby.

And we will go next to John Kernan with Cowen and Company.

Good morning, everyone. Thanks for taking my questions. Manny can you talk to just the structural differences right now between the apparel markets in North America and Europe? Just big differences obviously in sale-through, sell-in and margin profile so just can you help us understand how much healthier these markets are for your brands in North America where you are obviously outperforming your peers in North America but it's the growth in Europe that's obviously very impressive.

Sure. So Asia is virgin territory and principally Asia with probably exception of the Korea market, but even there -- Asia is basically the retail direct-to-consumer market. And even where there are major department stores in Asia it's principally a concession model there so that is -- that in of itself makes it a retail play within a department store environment. So and there obviously there is just growth happening across the board. China got tremendous growth prospects for the future. When you move to Europe -- the difference -- the two big fundamental differences between North America and Europe. One is we clearly over stored in the United States on every level and look you guys are the analysts. You know the statistics and this on a per capita basis depending on the categories it is anywhere from 3x to 7x more square footage in the United States per consumer than you see in throughout Europe. In addition, the department store market is much more fragmented when you consider the European market broadly. In the United States, there is a couple of major players that dominates the market while in Europe there it's much more fragmented and there you have opportunities to have different strategies with each of those retailers. Fundamentally from a financial point of view, the big structural difference is given the consolidation in the US, it is a more efficient model from an expense point of view. The European market is a much higher gross margin market with higher margins. In reality, the Europe market is about a 1,000 basis points higher gross margin with a 1,000 basis points higher expense structure. And the US market is 1000% lower margin with a 1000% more efficient -- 1,000 basis point more efficiency on the SG&A line. From a profitability point of view, I'd say Europe is slightly more profitable than the North America market overall maybe a 100 basis points but that gives you some of the dynamics, I hope I answered your question. Fundamentally, is pressure coming from the digital channel in both places I'd say fundamentally it's being managed in both places but the European market is there just more fragmented as well than what we see in the United States.

Okay. Then just a quick follow up question. Mike, you have got a lot of cash flow, you've talked about capital allocation between share buyback and debt pay down but I am just wondering how you are viewing some of the international licenses that you have not brought back in house yet. Which one should we -- which ones are you most focused on at this point?

So, look, I guess you said the international licenses are profitable for us. We've talked about them as an opportunity for growth. We continue to look at Asia. We continue to look at Brazil. We continue to look at our JVs that we operate today and look to potential take some up -- take positions there as well. But we are generating cash and we are always considering these opportunities as Manny says all the time a deal happens when a deal happen. So it's on our list. We watch and we navigate with our licensees.

Yes. The only thing I'd add I think we've over the last year I think we've clearly demonstrated an ability to bring those businesses in house integrate them very profitability. Gets the benefit out of it both from the top line point of view by having greater control and at the same time getting the synergies that come with the acquisitions from an expense point of view?

We'll go next to Michael Binetti with UBS.

Hey, guys. Good morning. Thanks for taking my question. Just two items in the model that help us out maybe if I look at the revenue guidance for Tommy Hilfiger and the third quarter looks like it's a pretty big acceleration than I think you are implying a slowdown in the fourth quarter. I know in general or at a high level you got order books in Europe that have accelerated so that I can kind of understand a bit of an acceleration, I don't understand why would slow I guess in the fourth quarter especially with the extra week? And then I think we see the opposite for Calvin Klein where you guided accelerated a little bit in the third quarter and slow in the fourth quarter. Anything you could help us just understand directionally what's going on there?

So, look I'll give you a couple of fact to it. We have one, on the Calvin Klein side of the business, the Mexico deconsolidation lapsed itself predominantly for most of the fourth quarter so we are not up against as we were in the first, second, third. The 53rd week is definitely an add-on so that's a good guy for us. And that's partially offset by the trends in the currency last year, the strongest quarter for the US dollar, or to say definitely the weakest quarter for the euro and our other currencies was the fourth quarter. So that's a benefit for us on a reported basis. And lastly for Tommy in the fourth quarter we did experience some sell-off as we handed the business to G-III on the women side. So we actually are up against some of the sell-off.

Yes, we sold -- the balance of what was left of the product we sold off but those sales were -- I know they weren't unprofitable but they weren't profitable sales either. So I think when you take it all in and I guess the only thing I'd add is I think the fourth quarter clearly has -- could have upside sales opportunity as we get closer to it.

Okay, that actually helps a lot. And then I guess I'll ask Erinn's question a little bit differently but in the start if you look at the back the SG&A, you guys really started to make some of the big investments last year and compares get very easy. Is there a point in horizon you can tell -- talk to us maybe it is not in the back half but where you could actually start to see some SG&A leverage. We are talking pretty consistently about some good top line numbers at this point. The order books internationally are pretty consistent. So I think you got a lot of believability in that outlook. But maybe you could just help us think about if we can feel more comfortable there. When do you see the SG&A leverage in the business as a likely things we'll see?

I think where you are really seen the starting in the fourth quarter and into 2018. I think we've talked about the China acquisition across the board where we really made major investments in infrastructure, in people, in audit. We are continuing at the top line but in Asia, particularly on the Calvin business we are not getting the bottom line flow through as we consistently gotten because it was a moment in time with the big acquisition like we made that we had to make an investment in the infrastructure. We’ll lapse that pretty -- starting in the fourth quarter of this year. And as we put on type of sales growth that we are getting in the -- that we are getting throughout this year that leverage on that SG&A line to continue. The only place where we are not going to get leverage is marketing. Because we are committed to consistently spending a percentage of sales of our sales on that marketing investment. And we don't want to take the foot off of the gas because we see the dividend that is paying for us. Secondarily, I'll be honest, I think what you had seen in the past, if we did run into a rough patch we know how to manage expenses in that type of environment as well but this for us clearly not that kind of environment.

And if you add that up I guess just a final if you add all that up that offset a pretty meaningful mix shift of the 1,000 basis points higher SG&A international. You’ve got enough there that rolls offset the natural mix shift in your business on the SG&A line.

Michael you are smart guy. That's why you get paid for. You run a numbers, you figure out how it goes that way. We are reporting.

And we will go next to Kate McShane with Citi.

Thank you for taking my question. With regards to CK International and the momentum there. If you had to highlight one or two areas that might need more work what would that be? And how meaningful would it be to contributing to this existing business momentum?

Well, I think the biggest opportunity for Europe which we are basically not even touching to speak of is the men's and women's sportswear opportunity and included in that you have to think about tailor clothing, the footwear business is at its infancy, the accessory business is nice healthy business but comparatively speaking very small. We've talked about that we think that when we made this acquisition we thought that Calvin Klein Europe business first opportunity was to get a $1 billion but there was really no reason over time that we shouldn't be as big as a Tommy business which is basically $2 billion. We are talking about all reporting sales. So those -- that are the opportunity and look those businesses, particularly the women's business will require some investment. But you will not see any slowdown in the overall operating margins of that business but building that infrastructure out and building that to take advantage of that growth, we will continue to make investment. And then clearly we are investing digitally across the board. We are investing in our supply chain. And that's not just Calvin issue. That is across the board. We need to do all the things because the bar keeps getting raise from a competitive set and we see the benefits of doing that. And I think there will be benefits particularly on the gross margin line with some of those investments.

That's helpful, thank you. In the shorter term I just wondered if you could make any comment about impact to gross margins when it comes to holiday and what are you anticipating from the environment with regards to promotions?

If Erinn it's going to be promotional, it's always promotional. I don't think it will be worse than last year. I think in some respect it should be better. Inventory is on -- inventory is in good shape particularly our inventory. We've positioned ourselves as you can imagine, if you look at where our inventory on the balance sheet is we are up about 6% and our sales guidance for third quarter is 4%. Clearly, we think we've been smart about taking that additional inventory position to try to capture the opportunities that are ahead of us. And I think who knows what's -- I have a crystal ball but relatively speaking we are planning particularly in North America that it's going to continue to be promotional and we are going to have to be competitive in that market but I think you will also see, it's continue to see improvement on the gross margin line because of all the initiatives and because of the momentum of the brands.

We'll go next to Christian Buss with Credit Suisse.

Yes. I was wondering if you could talk a little bit about the marketing strategy going forward for Calvin and for Tommy. And also wondering more detail how Raf Simons success on the collection side is being filtered through the rest of the collection?

So I am going to talk about Calvin, then I am going to turn it over to Daniel to speak about Tommy because I think you should hear from the guys who is driving the business. On the Calvin side, look I think you can't help us be here and be involved with brands and not see the impact that Raf Simons had on the business. And you see it from the press and the excitement around the brand and really getting placement. But at the same point his first collection is being delivered as we speak is some early reaction to it that's been positive at point of sale. But the windows that you are going to see that I think is going to help second half of the business when you go by Bonnie see Calvin Klein in those windows. When you go to Saks and see similar things like that. That halo effect is just beginning to be felt. I think the excitement is building. I think there is -- we are clearly that excitement is throughout the retail community with our partners and our department store accounts as we talk about it. But how much that is really filtered to the consumer directly and the excitement associated with that, we'll have to see how that will go, how that will works. We really feel like our next show will be early September which we think will be second show under Raf and based on what we see coming now from last year's show, the response has been unbelievably positive. So we feel really good about. We think it's going to be a major halo effect for us. Then I am going to turn over to Daniel to talk about some of the initiatives at Tommy.

Thank you. So we continue in what we have started already last year, this great momentum in Tommy now together with Gigi Hadid Manny mentioned already as our ambassador that has materialized significantly into our business. What we also mentioned Manny before is the next part so that we are going to continue with GT on the women's wear part but we also integrate now the Chainsmokers in a similar way as we've done with GT for the next season. And for next year there is more in the pipeline that we yet not have talking about. So in the combination of this Tommy now and with all our ambassadors we have in place we continue with our strategy that has really boost the brand over the past 24 months in incredible way and this is our vision to continue also going forward.

And we will go next to Ike Boruchow with Wells Fargo.

Good morning, everyone. Congrats on the quarter. Just want to go back to Michael's question on Calvin. I am sure there is conservatism built into your plan. The guide for Q3 for constant currency growth is around 4% versus the 8% you did in Q2. Just I -- I apologize but else equal where would the decel comes from? Is it something in North America or timing from shipments overseas? Just want to understand the dynamic a little bit better.

It's some of that -- I think as we've talked about some of these just retailers accelerating planned third quarter shipments into second quarter. So it' a bit of a timing issue. Whenever you guys see the quarters as we've seen good move forward and the accelerated into the second quarter particularly in North America as we've seen that business really start to take off. And I think if you do let's be fair, if you do the math I think you see a pretty significant increased planned for fourth quarter. So you always get into this where does the decel come? Does it go out the last week of October, the first week in November, there is a lot of have built in, you really got to take those two quarters together. I think the implied growth rate based on what Mike said is a double digit increase. I don't want to get too specific in the fourth quarter. So this is clearly not any kind of deceleration going on but month-by-month, quarter-by-quarter there is always a movements going on. There is nothing happening at the Calvin Klein brand level or business that would indicate any kind of deceleration.

And we will go next to Heather Balsky with Bank of America

Hi, thank you for taking my question. I was wondering can you talk about how your online only pure play partners manage inventory and how that compares to, how your department store partners manage inventory. Is there any real difference between the two channels?

Okay. Couple of things. I think our classic department store customers are experts. They know how to run businesses and they've been doing it for years. So their methodologies particularly as it centers around selling core fashion and fashion product is much stronger than our online players. The online players when you think about it, they are tech companies. What they do really well is they sell core products really well. And they sell product, they continues to season to season. We are working with number of those players to try to develop their analytics that selling apparel especially fashion apparel is not the same as selling dish wash soap. And you can't just move it from one season to next and your best seller in season one fall which might be turtlenecks, when you go to spring; it clearly is not going to be turtlenecks again. So that dynamic and that learning curve have a long way to go when you think about the tech player. So besides that profitability that we see selling both channels is as good with both as the other, we're agnostic to where the sales go but I think -- hopefully I answered some of your questions. We don't see any more pressure coming from department stores or from tech company, some of these tech players about holding more inventories or doing certain things. We are pretty much experts with the how to run core replenishment businesses. We understand how to really manage that inventory when the business is going well. How to take inventory position to continue to momentum where some of our partners not might have bought enough, we are behind them try to kind of that fill that business particularly in low risk categories basic in underwear, to dress shirt, core replenishment sportswear and to really continue to drive that business. So I hope put some color on that.

Operator, we are going to take one more question before we close so we can all get back to business.

We will take our last question from Eric Tracy with Buckingham.

Hey, guys, thanks for squeezing me in and I'll add my congrats. Manny, if I could just follow up on the digital business. Right I mean you guys are clearly taking share in North America within the existing wholesale, but we know there are secular long-term challenges to that overall business. So as you think about evolving your own digital or partnering with these online pure plays, maybe just speak to us, again, a little book in the strategically as you think about price transparency, product segmentation, where both Calvin and Tommy stand and what needs to take place?

Okay. So I guess look we are -- we've been -- we continue to be a multi channel players. We have our own retail stores. We have our online direct-to-consumer business. We've got our most important channel of distribution which is our department store account and their dot.com business and then we have this infancy business with a couple of pure plays including Amazon in North America which is the big player. Our job is to create demand for our product. Our job is to create desire for our product in each of those channels of distribution. Also our job is to manage the channel complex that comes up with those -- with each of those channel and distribution. And there is no cookie cutter answer for this is what you do. Some brands rightfully so and we do it with our brand portfolio. We have some exclusivity that we really focus on exclusivity because we think that's right for that particular brand and what's driving. And other brands we decide that, no, we don't want to be exclusive. The brand got the strength and demand to play across all channels and distribution. The challenge you face when you are a multi -- when you are non-exclusive is a great responsibility on you to drive track to drive sales and you take on a bigger burden both from a direct-to-consumer interface but also financially you take on bigger risk profile because we have a responsibility to our partners to deliver them a certain gross margin which we've always historically done. Those are the levers that we play and what's necessary. And then each brand is got its own strategy and distribution is not a mirror image across each one by each geographic market. And that's about all I guess I really want to talk about it.

Okay. With that I'd like to thank everyone. I hope everyone enjoys the balance of their summer over the next couple of weeks. And we look forward to speaking to you in November with our beginning of holiday results. Have a great day and enjoy the rest of the summer. Thank you.

Thank you everyone. That does conclude today's conference. We thank you for your participation.