Manny Chirico - Chairman & Chief Executive Officer Mike Shaffer - Executive Vice President, Chief Operating and Financial Officer

Bob Drbul - Guggenheim Securities Erin Murphy - Piper Jaffray Matthew Boss - JP Morgan Michael Binetti - Credit Suisse John Kernan - Cowen and Company. Kate McShane - Citi Chethan Mallela - Barclays Dana Telsey - Telsey Advisory Group Heather Balsky - Bank of America

Good morning, everyone. And welcome to the PVH Corp's Second Quarter 2018 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 August 29, 2018 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 the subject of this call. These risks and uncertainties include PVH's rights 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 2018 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. Please go ahead.

Good morning. Thank you, Ellen. Joining me on the call are Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Head of Investor Relations; and Ken Duane, CEO, PVH Heritage brands. I am pleased to report that PVH experienced a strong second quarter which exceeded our expectations, solidifying a terrific first half of 2018 as we continue to see broad based strength across our businesses. Our EPS increased 29% to $2.18 for the quarter which was $0.08 above the top end of our guidance. Revenues grew 13% which was also above our plans and reflected momentum across all of our businesses globally. Broad-based strength was seen across all distribution channels, wholesale, retail and digital. And digital remained our fastest growing channel with revenues growing over 20%, of course, our third-party and owned and operated businesses. Again our digital sales for the companies represent about 10% of our total revenues. Our first half performance continues to highlight our focus on executing against the strategic priorities, which we've had discussed before. First, we are driving consumer engagement through innovative designs and personalized brand and shopping experiences that capture the heart of the consumer. We continue to invest in the brand experiences across all channels of distribution from stores to wholesale presentation and digital experiences. From more frequent newness in our stores through capsule collections and more frequent products [drops][ph] to new omni-channel capabilities in store, which continue to focus on creating authentic brand experiences. We believe that our increased use of regional brand ambassadors, balanced with our global energy campaigns is allowing us to reach new consumers and build our share of voice globally, resulting in clear global market share gains for Tommy and Calvin. Second, we are expanding the worldwide reach of our brands through organic growth and acquisitions. We continue to be pleased with the growth trajectory of our European and Asian businesses. And we see opportunities to take control of some of our license geographies and product categories over the next two years. Third, we are investing and evolving how we operate by leveraging technology and data to be dynamic, nimble and forward-thinking. We are making significant investments and enhancements to our data analytics, and our data capabilities, which we believe will drive future growth. Importantly, we continue to make the right investments in our infrastructure to support the long -term growth of the business beyond just the systemic perspective, including investments in our supply chain which is delivering critical speed to market capabilities, enabling us to more effectively react to changing business trends. Increasingly as the mix of our business shifts to digital, our investments in digital sites continue to deliver against consumer expectations. Finally, as we look to our projections for the year, we raised our earnings guidance by $0.10 per share at the high end of our range. Our new earnings per share guidance range implies a year-over-year earnings growth of about 16% and we continue to conservatively forecast our second half sales and earnings estimates. We strongly believe that if our current business trends continue that we have opportunities to significantly exceed our sales and earnings guidance for the second half of the year. Michael will quantify this in his comments. Now moving to our brand results. I'll begin with Tommy Hilfiger. Tommy Hilfiger had an outstanding quarter exceeding our expectations and posting outperformances across all regions. We believe that we are putting the consumer first giving them strong product assortment at great value propositions including engaging brand experiences, and marketing campaigns to really build our lifestyle connection. I'm pleased to give you an update on some of our exciting fall initiatives. Hopefully most of you have seen Lewis Hamilton, Formula 1 world champion, our Tommy Hilfiger global men's ambassador. He has been wearing Tommy Hilfiger sportswear on and off the racetrack. He is resonating with the Tommy consumer across the globe particularly in Europe and Asia. We will be launching our fall 2018 campaign over the next few days and which will include Lewis as well as our new women ambassadors Winnie Harlow and Hailey Baldwin. In addition, Maggie Young, the prominent Chinese actress was recently announced as our Greater China regional ambassador to help support our strategy to drive growth in the China women's business. Lastly, we will host our Tommy now Fashion Show in Shanghai on September 4th and the Tommy X Lewis product capsule will be available during that live show. In addition to the show taking place in Shanghai, we are also partnering with Tmall for a super brand day on September 4th which will bring the full impact of the brands see now buy now platform to China together with some special offers for consumers and exciting activations on tmall.com. From a business perspective Tommy's revenues increased 15% and earnings rose 34% in the quarter driven by strong revenues, gross margin expansion and SG&A leverage. Internationally, revenues increased 20% in second quarter with continued strengths in Europe and Asia. International comp rose 11% which exceeded our expectations reflecting the health of the brand and the quality of our execution. Our performance in Europe has been outstanding against even tougher comparisons which we attribute to strong product assortment and our effective efforts to connect with a new, younger consumer. As we convert this consumer, we believe we are getting share versus our peers. We are pleased to see strength across all channels, retail, wholesale and digital. And as a reminder, our fall holiday 2000 (sic) [2018] order book is up over 10%, and we expect our spring/summer 2019 order book to be up about 10% as well. Tommy Asia continues to perform as well. Both our China and Japanese businesses continue to deliver strong growth across all channels with exceptional performance in our e-commerce businesses. In particular, we continue to be very pleased with the growth trajectory of our Tommy China business. As we continue to grow the brand, invest in the business and directly operate more Tier one and Tier two cities. I'm pleased to note that we are becoming more visible in the market together with our local activations we are seeing brand awareness and the desire to purchase continue to improve. Moving to North America. Our overall revenues were up 9% with broad-based strength across all channels. Retail continues to drive strong growth in the quarter with comps up 5%. We saw strength across all categories which we attribute to our assortments and the impact of our consumer engagement activities. Our wholesale performance had another strong standout quarter with strong sell throughs across all major product categories. On the licensing side, we continued to be extremely pleased with the performance of our women's business on the G III, which continues to experience strong growth. Now I'd like to move to Calvin Klein. With our new Chief Marketing Officer in place and the brand really focusing during the quarter, we are increasingly focused on how we can leverage our already successful #my calvins. In particular, we have focused on evolving our consumer engagement programs from leveraging not only our global brand ambassadors, but local and regional influences to drive local market activations in an effort to further connect with the younger and wider audience. For fall 2018 we have announced a few exciting campaigns and initiatives so far. I'm sure many of you have seen this Kardashian-Jenner 2.04 campaign that recently launched. We are getting great traction from a customer engagement and sales perspective. With our new monogram launch and our modern cotton programs experience strong second quarter performance to date. We announced our Calvin Klein women's fragrance featuring Lupita Nyong'o and Saoirse Ronan as part of this campaign. We are using #IAMWOMEN to allow our consumers around the world to pay homage to the females in their life that inspire them. Our strategic partner, Coty, is putting a significant amount of marketing dollars against this campaign, and should be very visible as we move into the back-to-school selling period. As we head into our global CK jeans relaunch this fall, we just launched today our multimedia campaign for fall 2018, reflecting the next chapter of the #mycalvins movements, which embraces a digital first socially powered mindset. The campaign will have extended digital content featured across all social platforms throughout the season. Initial read on product in stores have been very positive with a great response to the new fits, upgraded washes and fabric treatments. Lastly, we have some great activation plans for the second half of the year. Many of which will launch over the next month or two and unfortunately I cannot spill the beans today. So be on the lookout for some more exciting collaborations and activations from Calvin Klein. From a business perspective at Calvin, revenues increased 18% for the second quarter reflecting strong global trends and total earnings were up almost 10% during the quarter. Our earnings improvement was driven by our outperformance of our sales plan; however, operating margins declined 80 basis points and missed our margin plans. Beginning with Calvin Klein internationals, revenues rose 16% reflecting healthy top-line growth in both Asia and Europe. We are pleased to see broad based strength across Asia with healthy growth in China, Korea, Central and South Asia despite some macro volatility during the quarter. In particular, digital commerce experienced exceptional growth as we continue to embrace the channels that are most relevant to our consumer. Calvin Klein Europe continued to experience momentum and we remain excited about the brand's opportunity to expand product line, and capitalize on the white space opportunities for the brand. Building upon the momentum from our 2018 order books up over 25%. Our spring summer 2019 order book is up 20% reflecting continued growth in all key categories. Additionally, as a reminder, we will launch Women's Wear and Calvin Klein performance beginning with the fall 2018 season and we look forward to building out those categories over the next few years. Calvin Klein North America saw revenues up 19% in the quarter, as we experienced improved trends through the quarter particularly at wholesale where we saw strength in underwear, sportswear and our men's denim business. Average unit retails rose across most categories. Additionally, digital was the healthiest channel across our department store customers, our own site and our pure-play partners. In our retail business, we posted a 2% comp store increase driven by healthy domestic consumer. Looking ahead, we are excited about the upcoming brand initiatives including our denim launch for fall 2018 season. Moving to Heritage. Finally, in our Heritage business, revenues for the quarter were above our plan for the quarter, but declined about 3%. In general, we saw a nice performance across our wholesale business with continued shared gains and our retail business posted a 3% comp store sales increase. During the quarter, we officially launched our Heritage digital ecommerce site this summer including vanheusen.com, izod.com and stylebureau.com and we have been pleased with the initial performance of these sites. Additionally, beginning for 2018, we will launch Izod in Europe to customers in Spain, Germany the Netherlands and Scandinavia, offering our classic American Izod signature lifestyle products including t-shirts, polo's, sweaters, heavyweight knits, pants, denim and outerwear. We believe this is an opportunity for us particularly as we look into 2019 and beyond. From a marketing perspective, we recently launched our new campaign for a Van Heusen brand which includes a partnership with the UFC. The partnership establishes Van Heusen as the UFC's first-ever official men's dress furnishing provider, bring its innovative and flexible men's wear choices to the UFC's worldwide fan base. To kick off the campaign and partnership, UFC Bantamweight Champion T J Dillashaw; and UFC Welterweight Contender Stephen Thompson, are starring in a new commercial highlighting the innovative Van Heusen Flex Collection of men's shirts and pants which incorporates stretch features in a corporate business life-looking look without sacrificing the range of motion or comfort that is found in casual clothing. We think this is an exciting partnership and continue to keep you posted about it. With that I think as you can see from our updated 2018 guidance, we've experienced a terrific first half executing against our strategic priorities in the face of the changing dynamics in the industry. Looking at the second half of the year, third quarter to -date trends are signaling a strong start to the quarter with comps running up similar trends as we experienced in the second quarter. We believe that the incredible brand power behind Calvin Klein and Tommy Hilfiger continues to position us well in the marketplace against our competition, and will drive continued momentum into the future. And with that I'd like to turn it over to Mike to quantify our second quarter earnings and 2018 outlook.

Thanks Manny. The comments I'm about to make are based on non GAAP results and reconciled in our press release. Due to the 53rd week in 2017 comp store sales for 2018 are more appropriately compared on a one-week shifted basis. Comp store sales I mentioned for the second quarter are compared with the 13 weeks ended August 6, 2017 instead of the 13 weeks in the July 30th, 2017, which was the end of the prior year second quarter. Our reported revenues for the second quarter were up 13% which exceeded our guidance. It was inclusive of a 2% benefit from FX. Tommy Hilfiger revenues were very strong up 15% inclusive of a 2% benefit from FX. Tommy Hilfiger International revenues increased 20% inclusive of a 4% benefit from FX. The Tommy Hilfiger revenue increase was driven by the strong performance in all regions and channels. Tommy Hilfiger North America revenues were up 9%, fueled by strong wholesale performance and solid retail growth. Our Tommy Hilfiger International comps were up 11% and North America comps were up 5%. Calvin Klein revenues were up 18% inclusive of a 2% FX benefit. Calvin Klein International revenues increased 16% inclusive of 3% benefit and FX driven by outstanding Europe and Asia performance. Our international comp store sales were up 5%. For North America, our revenues increased 9% for Calvin Klein; strong wholesale performance in all categories drove the increase. Heritage revenues were down 3% to the prior year. Our Heritage retail business comp store sales were up 3%. Our non-GAAP earnings per share of $2.18 was 29% higher than the previous year, and $0.08 better than the top end of our previous guidance. The EPS beat versus previous guidance was driven by strong business for $0.05. Interest and taxes were also favorable by $0.03. We ended the second quarter with inventories up 16% versus the prior year due to a shift from the timing of inventory receipts as a result of the 53rd week in 2017 and our projected sales increase for the third quarter. We also continue to make investments in basics and core products to capitalize on opportunities for the balance of the year. For the full year 2018, we are projecting non-GAAP earnings per share to be $9.20 to $9.25, 16% growth over the prior year, which is a $0.10 increase at the top end and a $0.15 increase at the low end compared to our previous guidance despite a reduced foreign currency benefit for a full year. Now included in our earnings per share guidance is the reduced positive impact of foreign currency translation of $0.07. This is $0.05 benefit reduction compared to our previous guidance of $0.12 and consists of the positive impact of $0.23 in the first half of 2018, partially offset by an estimated negative impact of $0.16 in the second half of 2018. Our new guidance at the high end when compared to our prior guidance at the high end now reflects a $0.10 improvement in business, $0.05 in improvement associated with interest and taxes, and this is partially offset by $0.05 of unfavorable currency. Overall, we're projecting revenues to grow by about 7% including the positive impact of 1% related to foreign currency. Overall, operating margins are expected to increase approximately 30 basis points for the company. Tommy Hilfiger revenues are planned to increase 9% inclusive of a positive impact of 1% for currency. Tommy Hilfiger operating margins are planned to increase about 80 basis points. We project Calvin Klein revenues to grow 8% with no impact from foreign currency. We're also planning Calvin Klein operating margins to be down about 50 basis points, which is a reduction of 30 basis points to our previous guidance. This reduction is a result of our Calvin Klein businesses underperforming their gross margin plans. We've reflected lower gross margins for Calvin Klein for the balance of the year. Our Heritage businesses planned to have revenue growth of about 1% and operating margins will be higher by 10 basis points to last year. Interest for the year is planned at $117 million compared to the prior year at $122 million. In 2018, we are planning to pay down at least $250 million of our debt. Stock repurchases in 2018 are planned to be between $200 million and $250 million. Our tax rate for the year is estimated at 13.5% to 14.5%. IRS regulations are expected to be issued later in 2018 related to the recent Tax Reform Act. Our current estimates could be subject to change if the regulations differ from our current interpretations. Negatively impacting our second half earnings per share projections is a $0.16 unfavorable impact versus the prior year due to FX. In addition, revenues are negatively impacted by about a $150 million in the second half of 2018, compared to 2017 from the 53rd week and resulting calendar shifts. The $150 million reflects about $80 million of revenue that does not repeat from 2017 into 2018 due to the loss of one week of business from 2018 compared to 2017. In addition, the $70 million of revenue that moves into the first half of the year from the second half of the year as the calendar shifts a high-volume retail selling and wholesale shipping week out of the second half and into the first half. In addition, we continue to plan that the second half of 2018 will include an increase of approximately $15 million in marketing compared to the second half of 2017 primarily related to Calvin Klein. Marketing as a percentage of full-year revenue in 2018 continues to remain consistent with 2017. Third quarter non-GAAP earnings per share is planned at $3.10 to $3.13 includes approximately $0.09 of negative impact for foreign currency. Revenue in the third quarter is projected to increase 7% including the negative impact of 2% foreign currency. Tommy Hilfiger revenues are planned at 10% increase including the negative impact of 2% related to currency. Calvin Klein revenues are planned at 5% increase including the negative impact of 2% related to currency, and our Heritage brands revenues are projected to increase 8% in the quarter. Interest expense is projected to be about $30 million and taxes will be 4% to 5% in the third quarter. And with that operator, we will open it up for questions.

[Operator Instructions] Our first question comes from Bob Drbul from Guggenheim Securities.

Hi, good morning. I was wondering if we can spend a little more time on the Calvin Klein businesses. In the quarter, can you talk about the margin performance in the quarter, elaborate on that a little bit and I'd be curious just the preparations on the denim relaunch. How that's gone and I think you said it's off to a good start but I was wondering if you could maybe update us on pricing around the denim piece as well.

Sure. Thanks Bob. Look, we are somewhat disappointed with the Calvin Klein margins for quarter. And I think what we've done is we've taken that result and projected out for the balance of the year. I think first and foremost, we've been more aggressive in clearing the old jeans product off the floor, which I think is a good thing and will set us up well for the second half of the year and as we move forward. So we've really been even more aggressive than we originally planned about moving that off the floor. And that resulted in some allowances in markdown, additional markdowns than we had originally planned. In addition, I think as you know, we're launching a number of new Calvin Klein businesses internationally. Women's performance, expanding the men's sportswear significantly. And we are -- as we look at those estimates and as what's going on, we've decided from a guidance point of view to be more conservative on the margin expectations on launch as we look forward. I think we're really well set up, inventories are clear, but I think when you're launching new products; I think we have to be a little bit more cautious about how we plan some of those new businesses as we start to roll those out. I think if you think about the Calvin Klein business overall, it's --we're not performing at the margin levels that we believe we should be at. If you compare it just to the Tommy business and historically Calvin has been at least at that or better. We're 200 basis points behind the Tommy operating margins. And we see that as a major opportunity for us, the second half of this year and as we look into 2019 to really have the opportunity to put that back into our business plans. And capture that 200 basis points expansion as these products start to get traction as we learn more about the new businesses that we're in. As the denim cleanup is completely behind us, it all feels very positive as we look out. And we're taking some short term pain today.

Got it and okay thanks Manny. And I guess just Manny a bigger picture question for you which is VF recently announced that they were going to spin-off their businesses. I was wondering if this is something that you would consider I was wondering if you could give us your perspective on any sort of possibility around that. Thanks very much.

Bob, we usually don't get into that whole commenting. But we look at I guess, let me take it different. I am not going to speak about VF obviously, but we look our heritage businesses as really giving us a base where we can -- from an efficiency point of view, sourcing point of view and infrastructure point of view, solid cash flows. And I think unless somebody can demonstrate to us the delevering that would occur within the organization from breaking that business model apart, and that we're going to get significant multiple expansions. That's to me is the thing and -- it's been hard-pressed to be proven to me. As Calvin and Tommy naturally just continue to grow at the last two years at double-digit rates, the heritage business which three or four years ago is 20% of our business, today is 10% or so. And clearly is going to -- even with their good performance would just as the math, will just become a smaller piece of our business, but contributed stable cash flows, and give us the efficiency as I touched on. So I don't see us going down that road. We're always open to looking at opportunities to enhance shareholder value. We're not sure that's right for us anyway.

We will take our next question from Erin Murphy from Piper Jaffray.

Great, thanks, good morning. Manny I was hoping you could talk a little bit more about the digital strengths that you saw in the quarter. You talked about it being up over 20%. How much of that is coming from pure-play versus your own.com? And then if you could elaborate a bit more about your relationship with Tmall? It sounds like you have some exciting events planned in the fall. How broad is your product distributed on that platform today? And what do you expect in the back half from just the overall China market as you kind of further catalyze that region?

Sure. I guess, let me take a step back, digitally we're seeing significant growth. We're seeing on our owned and operated sites that we have ourselves around the world. We're also seeing with our business partner macys.com business continues to grow significantly. And our penetration there continues to grow as a percentage of our total business with Macy's and as well as some of our other department store accounts. It's just become a critical component to our growth as we move forward. Internationally, as we think about the business we look at Zalando as a key partner for us. And we've seen tremendous growth and an expansion of our presentation on those sites. And done in a way that is very brand enhancing both for Calvin and Tommy as we move forward. So the growth there continues to be significant and the growth in Europe with our own -- our owned and operated site also continues to be significant. From a point of view when you think about our Asia business, the Tmall business and the [jd.com] [ph] business are two key partners for us. We continue each season to expand our offering on those sites. They're our primary channel of distribution from an e-commerce perspective; e-commerce is gaining a greater penetration of our business within Asia at large and China in particular as the consumer really shops there and taking advantage of it. So it's been a significant growth vehicle for us. And then finally back in North America, our Amazon business and our relationship particularly with Calvin Klein, our Heritage brands and Tommy Hilfiger just continues to expand. We are very cautious about how we continue to roll out that product category expansion because we want to make sure the business continues to be highly profitable, but it's a great --it's a strong brand experience that's offered on that site. And we keep the assortment pretty tight clearly in North America. The e-commerce business is driven much more out of core basic products. And that's where we really tend to focus all of our e-commerce business in North America in that area. Fashion really we do that in our brick-and-mortar stores and through our wholesale accounts. And that's been driving the growth there. So as I said I think our growth is up in this channel in excess of 20%. And our penetration from 12 months ago has gone from 8% its total sales to just over a project initiated just be over 10%. So we're very happy with what we're seeing and we like the way our brands are presented on the site.

Got it, thank you. And then just a clarification on the guidance for Calvin. Could you just speak to the Calvin top-line expectations in the third quarter? I think you talked about them being up 7% constant currency which is a deceleration from the 16% in Q2. How much of that is just conservatism versus some of the timing of shipments just curious on some of the drivers behind that deceleration on the top-line.

I think it's important when we look at this that. So we really look at least --you get hung up on quarterly analysis. I think the best way to look at it is on second half. And if you flush out the currency issues on both sides with currency being a positive impact in the first half of the year; currency being somewhat negative impact on the second half of the year. Move the calendar shifts that Mike talked about. I think what you'll see is we are planning -- for the business in totality overall we were up about 9% in overall for all of our businesses. And we're planning the second half up about 6% overall. And Calvin Klein is more or less following that trend off of that, down about 200 to 300 basis points on an apples-to-apples basis. I think it's what --I think two things. I think it's what's going on a Klein and I think we're a victim of our own conservatism as we're building the plans for the second half of the year. We're just-- we're going to be up against up -- we are up against stronger comparisons. And we're just not building in that same kind of growth. The trends right now would indicate that we are being too conservative on that estimate. But we're only three or four weeks into the plan, into the quarter but obviously that gives us a lot of optimism against our plan.

We will now take our next question from Matthew Boss from JP Morgan.

Thanks and congrats on a nice quarter, guys. On the margin front, so underlying the 30 basis point EBIT margin expansion guide, and I think you reiterated. I guess any change to your gross margin expectation for the year maybe how best to think about performance in the back half. And then just multi-year, any change to the larger picture gross margin opportunity as you see it multi-year?

So, Matt, when you think about gross margins, we did take down the Calvin expectation which also as I said I took down their operating margins, but that was driven purely by the gross margin reduction for the second quarter and a projected decline for the third and fourth quarter. Our gross margin projection was --we had guided for the year to be up about 90 basis points as a result of that take down. We are now guiding to be up about 80 basis points. And then as we look out, I would --I guess I'd say the inherent model, the strength of our businesses we feel good about. And we don't see any changes in the model at this point in time. And we think as we go forward, we're still going to grow as we talked about.

I think you'll see that our international margins and as that business grows taking currency out of all of those noise, as that business will grow faster than our domestic that mix will also improve margins as we go forward. And I think as I said is focused particularly on the Calvin business because all we're seeing is in the Tommy Hilfiger and our Heritage businesses is continued gross margin improvement, is the Calvin Klein business really gives us the opportunity I think over the next 18 months to have a significant improvement in gross margin. Obviously, that would flow through from an operating margin point of view as well to deliver upside against where we are today. So it's clearly a 200 basis point opportunity, and I think we're well positioned to capture that as we start to get into fourth quarter and beyond.

We will take our next question from Michael Binetti from Credit Suisse.

Hey, guys. Good morning. Thanks for taking all our questions here. I guess I just want to follow up on the earlier question. Manny you commented that you think the trends in business today could mean an opportunity to beat the second half guidance. I think it was the first time we've heard you use the word significantly. So I think you were --we always look to you for a transparent look here, I think you meant to say that on purpose. But you did guide your revenues very strong through third quarter, so I just have to ask up here with pretty solid levels in the guidance already. Where if we look back at the end of the year do you think we'll have seen the most opportunity for upside as you look out?

I think the opportunity for upside consider --would be top-line, continuing to grow to succeed the top-line growth. And I think from an operating margin point of view I think we could see improvement there as well. And I think that could --it could be significant, it could be significant as we move into next year. So that's really where we see the opportunities. I think we positioned the guidance given the strong performance that we've gone on the outperformance that we've had for the first six months of the year, even dealing with an over $0.35 hit from a currency point of view. It's --we've been able to continuously raise our earnings guidance. And that's also given us the ability to be more conservative as we look at the third and fourth quarter. And the fourth quarter in particular as you think about it is, we lose the 53rd week. We're up against a 20% revenue increase in the fourth quarter of 2017 and having to comp that I think we're well positioned to do it. We're planning on an apples-to-apples basis to continue to grow, but clearly not anywhere near the levels that we've experienced the first six months of this year. So from our perspective, we think we've taken out just about every risk we can think of in the back half of the year. And really built our guidance where we can outperform as we go forward.

Okay. Maybe you can help us a little bit with -- on the near term I guess jump over to Manny and Mike. But on the third quarter EBIT, I think you're baking in about a 120 to 140 basis points of compression. How much to think about from grosses versus SG&A? and I guess backing up a little bit, I know, we've talked recently about a company adding a lot of SG&A in the past few years, and a lot of it came from some obviously important investments like unifying the creative side of Calvin. And some --putting some of the Tommy international businesses on your IT platform. So but 2Q was the first instance we've seen that we could be headed potentially for better SG&A leverage path forward. Can you speak to the outlook on SG&A there as you see it?

A lot of the SG&A leverage is going to depend on mix as we go forward between the International and our North America businesses. So we're going to have to be clear with you as we roll that out because if as internationally grows we should see gross margin expansion. And actually from a solid SG&A deleveraging because that business comes with a higher SG&A component associated with it. I think is as we look at it we really -- I just repeat myself the Calvin opportunity is really where we see the operating margin expansion opportunity as we move forward.

And look, I guess, I would add couple points. One, there is an additional $50 million in marketing baked into the third quarter. It's year-over-year, our percent remains consistent, but we did have a timing spent, a difference in timing of how we're spending that's in the third quarter. And look, there is a little bit of shift because of the shifts and the fourth and the third quarter, I think you are going to lose a week of revenues in the fourth quarter. So de-leverage on expense is going to be tougher while you pull out one week and you shift that high-volume November week out of the quarter, and put in a low February week. So more opportunity I think in the third than the fourth quarter.

We will take our next question from John Kernan from Cowen and Company.

Good morning, everyone. Thanks for taking my questions. Manny, I think this question is for you. The top-line performance has been obviously impressive but inventory for the last four quarters has now grown far in excess of sales. I just wondering how you're thinking about inventory as we go into the back half of the year? There's clearly been some Calvin margin pressure but how should we think about inventory and the ability get some of this off your balance sheet as we go into next year?

John, I think first, the calendar is just completely off. We're off a week and I know it doesn't sound like much but it's significant especially near to a quarter where you're building for back to school to get -- you get shipments in the first week of August. It's not apples-to-apples and I can't change that. But I can assure you and then when you think about, the only thing I would take exceptions with is, for the last -for the last four quarters, our top-line sales have grown in for those two brands in the mid-teens overall. And, yes, our inventory is going into the quarter we're up mid-teens, but I don't know how to have sales if I don't have inventory. So I recognize the point, I think we've always historically been really tight inventory managers. And as you think about the business being able to capture the opportunities I talked about is going to require us to carry some level of inventory above our sales plan. I would assure you that most of that is sitting in our basic categories, given the nature of our businesses that we have big, on the Tommy side, we have big essential replenishment business. On the Calvin side, we have big core replenishment business. I think about the underwear business, think about the denim and jeans businesses and those, some of those basic products we may own, even all sportswear. So huge opportunities I think to capture the growth, and I don't-- let me assure you there's not an inventory exposure built into our balance sheet that's causing us any concern about gross margins going forward.

Okay, that's helpful. And then just one follow up the Calvin business, obviously a source of margin pressure here, the Calvin International segment margins were down, domestic was up. Just wondering if you can help us understand which channel, wholesale, retail, international is driving the bulk of the margin pressure at this point in Calvin.

I think it goes back to clearly it's clearing the jeans business that we had in front of us in some of the markdowns and discounts that we provided for in the second quarter. I think what you'll see as you move forward you'll --you shouldn't see these things that you saw in the second quarter for Calvin going forward between international and domestic. I think international clearly will get back on the third --in the third quarter.

We will take our next question from Kate McShane from Citi. Please go ahead.

Good morning. Thanks for taking my question. We continue to hear about how tight inventory is in the wholesale channel. So I wondered if you could talk a little bit about growth margin with respect to having more full price fell through specifically in the US x jeans wear.

Sure. I think you, look, I think that's been -- that continues to be a big benefit for everyone is the lack of excess merchandise coming out of spring coming, coming out- first coming out of fall and winter as we came into the first quarter this year. And as we're coming out of the second quarter into the third quarter. I think one of the benefits that everyone is seeing is the cleanliness of the inventory, and the ability to turn quicker and react and we're trying to build that into our inventory position in order to try and take advantage of those sales opportunities as we go forward. I think that -- it really manifests itself significantly in our wholesale businesses as we go forward. You could see it in the Tommy business is clearly getting that incremental gross margin as we move forward. And seeing I mean fundamentally higher average unit retails going out the door at the department store level both in Calvin and Tommy is very helpful. The jeans launch and Calvin anticipates that as there's an upgrading of the product as we go in. And the product price points move up anywhere from 10% to 10% and we think that's critical for us as we move forward. We've built in some safety net against that in our margin expectations, but if being successful with that relaunch and being able to gain that AUR increase in jeans really would be a huge benefit for us as we move into the fourth quarter and beyond.

We will take our next question from Chethan Mallela from Barclays. Please go ahead.

Hey, good morning. So I wanted to ask about the Calvin women's and performance launch in Europe, and just a little more detail on the initial response you're seeing at wholesale. How you're thinking about the potential size of the business? And then if you can frame the contribution of those new businesses into the spring summer 2019 order books that you referenced, and what they would look like excluding these new categories? Thanks.

Sure. I think it's a good question. From sales perspective, I think it's still --those are still really small businesses. And I think those businesses on the increase are worth maybe 200 or 300 basis points in the sales increases that we're seeing from an order book perspective I think was your last question. From an opportunity point of view, the women's opportunity long-term is a $500 million business for us, wholesale, retail in Europe that would make it comparable to where Tommy Hilfiger business is. And in every other region of the world the Calvin women's business is significantly larger than Tommy business, but we're using that as a benchmark as we go forward. And in Europe overall, when you compare the two brands the Calvin business even with its strong growth that it's had in Europe and the repositioning of the brand and all the success over the last three years we've had with that business, it's still probably about 45% the size of the Tommy Hilfiger European business when you take all the categories into play. So that's where we talk about that we see white space opportunity for Calvin in Europe of about $1 billion for all sales, combination wholesale, retail and e-commerce. Just to get aligned with the Tommy business as we move forward. So that's the real opportunity as we go forward. The reaction to the product in the showroom has been very strong meaning retailers' response and that kind. But to be fair, the product is just being delivered 7/25. So we haven't seen a whole lot of sell -through yet and we'll be able to give you a better sense of that in our third quarter earnings release.

And then just a quick follow-up on --you talked about the task about the negative impact of a stronger dollar under domestic retail business, particularly in tourist centers. They delivered solid comps, positive comps in the second quarter, and it looks like the third quarter is off to a good start as well. So are you not seeing any reversal in tourist behavior or you seeing kind of other trends that are allowing you to continue to grow despite a softening of that --the tourist demand?

Yes. Look, what we're seeing based of all the data we see with our own North American retail businesses, the North America domestic consumer is very strong. We measure it against credit card sales and where they come from. That portion of the business continues to accelerate. And that's been strong --that's been which really drive our comp store performance in the second quarter as opposed to the international tourist piece of the business which is probably from a sales point of view flat to down slightly. And from traffic point of view is down even further than that. And I think that's a function of the dollar and you could --we all have our opinions about consumer sentiment and China and some of these key markets with some of the trade disputes and discussions that's gone on. So clearly, although our retail business has been robust, that's been driven by the domestic consumer as opposed to the international tourist consumer.

We will take our next question from Dana Telsey from Telsey Advisory Group.

Good morning and congratulations on the nice progress. As you think of the denim cleanup Manny for Calvin Klein, when does that come to an end? How do you see that progressing? And then on North American wholesale and European wholesale what do you thing are the trends there in the department stores? What new or different are they doing and how are they planning orders? Thank you.

Okay. I guess I was --the impact that denim relaunches that'll be over by the third quarter. So there might be some tailwinds of that in the third quarter, but then after that that should be behind us. The trends that I'm seeing in department stores in North America business are good. AUR is up across the board and when we look at their AUR, I think everybody's honest, traffic continues to be flattish but conversion and AURs driving a lot of the sales increases. I think there's a lot of market shares in North America. There's a lot of market share, ships going on. I think looking at specialty retail, I think they continue to be a contributor to margin meaning they're losing margin at the expense of other players. And I think that shows itself in a lot of the comp store performance that's gone on. I think department stores are seeing --continues to see good retail comps on plan, and is seeing, I think what's really driving their bottom line is that this higher AUR and higher margin that goes along with having the clean inventories that we're all seeing at retail I think that's really benefited their businesses they move forward. I would say the one thing I would say is they continue to buy very tight. They continue to demand inventory turn improvement. So at times we want as much as our sales performance would indicate we should get more open to buy dollars. We're constantly fighting for that and they're looking for more inventory turn and improvement which they benefited from a gross margin point of view. In Europe, the trends have been good. I think retail trends in general, I would just say is there was a moment during the summer that late June, July period, they --and I don't want to play weatherman, where there was oppressive heat. And I think everyone saw a bit of a slowdown at retail across the board. That's reversed itself as we moved into August. And you can see --we see in our own stores of significant acceleration of comp store performance in the first three weeks of August. So I think that's behind us. And I think it's relatively speaking, it's a pretty healthy market. We've got this pocketful of challenges as you would imagine like Turkey has been a challenged economy for us. It's not the biggest business for us, nicely profitable business for us about a US $50 million business. We're also dealing within UK, the House of Fraser bankruptcy, which gets factored into the third and fourth quarter, but that seems to be an orderly process right now. And we think they'll work their way through that, but on balance, we are pretty happy the way retail metrics are working throughout Europe as well. Operator, we'll take the last question.

Yes. We will take our last question from Heather Balsky from Bank of America Merrill Lynch.

Hi, thank you for taking my question. And first question can you talk about the decision to expand the IZOD to Europe? How do you size that opportunity? And does that change your view in terms of potentially acquiring a third brand to the portfolio? Thanks.

Okay, yes, two completely different questions. For the first is the IZOD, the IZOD business opportunity is a question mark. I think we are excited about the reaction from our key retail partners. They love the product assortment and product mix that's available. Given the aggressive nature of IZOD from a pricing point of view, they love the price positioning of the brand that goes along with that design aesthetic. And I would describe it as a test. And we are --we're positioning the IZOD business right at or it's just slightly above most of the private label department store business brands throughout Europe. And we think given the marketing dynamic we have, the legitimacy that's given to us by our European business platform from the Calvin Klein and Tommy Hilfiger business, the legitimacy that creates for us, it really creates an opportunity. I'm not going to size the business for you because I think that would be just a wild guess at this point. So we're really watching it. We're going to see it as -- we see it as an opportunity but clearly we think it's a $100 million business opportunity in the next two to three years. And we'll have to just see how quickly we can fill into that space and grow the business. And we like the competitive position that IZOD would be put into. The brand awareness for the brand IZOD which is so high here in the United States does not have that same brand awareness in Europe. So that would have to be built over time. So that's the balance as we think of it. We think it's our best opportunity with our Heritage brands to take it forward. From --it has almost; I would say the IZOD experiment has no connection to would we like to acquire a third brand, global brand to match Calvin and Tommy along with our Heritage businesses. That exists. Our balance sheet clearly gives us the opportunity to take advantage of that. The business opportunity that creates given our operating platforms here in North America, Europe and Asia. That clearly would fit into that and now and I think our track record of bringing in brands and businesses through acquisition and being able to integrate them relatively quickly to get all the benefits and synergies we see in the bit. And the opportunities are there. We did it with Calvin Klein. We've done it with Tommy Hilfiger; bring in the Warnaco transaction as well. I think all those things have paid significant dividends for us. And I think that track record along with our strength of our balance sheet clearly is one of the strategic drivers that we'd love to acquire a third brand. But it will happen when it happens as opposed to trying to force it. And with that I want to thank everybody for their attention. We look forward to updating you in November. Enjoy the rest of the summer. And speak to you in a couple of months. Thank you very much.

That will conclude today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.