Manny Chirico - Chairman and CEO Mike Shaffer - Chief Financial Officer Dana Perlman - Treasurer and Head of Investor Relations

Erin Murphy - Piper Jaffray Bob Drbul - Guggenheim Securities Matthew Boss - JP Morgan Michael Binetti - Credit Suisse Chethan Mallela - Barclays Tiffany Kanaga - Deutsche Bank Kate McShane - Citi

Good morning, everyone. And welcome to the PVH Corp Third 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 November 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 and identified under SEC rules. Reconciliations to GAAP amounts are included in PVH's third quarter 2018 earnings release, which can be found on www.pvh.com and in the Company's current report on Form 8-K furnished in 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.

Thanks, Jim. Good morning, everyone and thank you, for joining me on the call. Mike Shaffer, our Chief Financial Officer and Dana Perlman, our Treasurer and Head of Investor Relations are also on the call. I’m pleased with our earnings performance in the third quarter, which exceeded our expectations, driven by the power of our diversified global business model. We continued to over deliver against our 2018 earnings plan and are raising our full year earnings outlook based on our third quarter outperformance and our confidence in the opportunities for the fourth quarter, despite the recent bankruptcies in the U.S. and the UK, and increasing geopolitical volatility around the world. In the quarter, consolidated revenues grew 7% and 9% on a constant currency basis, while our earnings per share of $3.21 for the quarter was $0.08 above the top end of our guidance, despite a $0.06 unplanned charge relating to Sears and the House of Fraser bankruptcy. This earnings beat was driven by the outperformance of our Tommy Hilfiger and Heritage brands businesses, partially offset by the underperformance of our Calvin Klein businesses, and I’ll get into the discussion about our three brands momentarily, but I think first let me touch on our regional performance. Our international businesses continue to experience momentum, driven by strong growth in Europe, where our performance has been outstanding. Our brands are very desirable, and we are gaining share with both new and existing consumers. In Asia, our business performed well as a whole. I do want to note that while our Chinese business performed well and was ahead of plan, we have experienced some softer trends in traffic relating to a softening economy and the related trade concerns between China and the U.S. Despite this backdrop, we continue to see strong results out of China. I’m pleased to report that we continue to see healthy trends in our North American business, particularly in our wholesale businesses. In our retail business, we are experiencing growth with our domestic consumers, particularly at Tommy Hilfiger, yet we continue to experience a slowdown in international tourist traffic in the U.S. relative to the strength we experienced in the first six months of the year. From a digital sales point of view, we continue to see growth at an outpaced rate with revenues growing over 20% across our third party and our owned and operated businesses. Again, our digital sales for the company represent about 10% of total revenues. We are off to a strong start in the fourth quarter and including an excellent Black Friday weekend. As we look to the full year, we are raising our earnings guidance by $0.10 per share at the high end of our range. It is important to note that we are projecting underlying business to be more than $0.10 per share, covering an incremental FX headwind related to the strengthening U.S. dollar and the unplanned write offs related to our Sears and House of Fraser businesses. Our new earnings per share guidance range implies a year-over-year EPS growth of 18%, and we continue to prudently forecast our holiday season, especially given the strong start to the fourth quarter business. Mike will further quantify some of those results. Now moving to our brands results, let me begin with Tommy Hilfiger. Tommy Hilfiger had a truly outstanding quarter, continuing the outperformance we’ve had delivered throughout the year. The brand continues to experience global momentum with strength across all product lines and channels of distribution. This has been fueled by strong product offerings and consistent brand execution around the world. We believe that our consumer-centric brand approach is helping us gain meaningful market share, particularly on the younger end of the age spectrum. For example, Tommy’s capsule collection, with streetwear label Kith sold out online in 37 minutes. Notably, our recent brand studies have confirmed the average age of a consumer has come down several years as we continue to connect with more millennials and GenZ. We also are delivering compelling marketing campaigns both from a regional level and a local influencer perspective, which demonstrates to consumers all of the outstanding products that Tommy Hilfiger has to offer and doing it in a way that highlights diversity of our markets and the needs of our consumers. Our current marketing campaigns personify this from Lewis Hamilton to Hailey Baldwin, Winnie Harlow, and Maggie Jiang, as well as diverse global influencers that are featured in our Tommy Jeans campaign. We also are excited that Zendaya will serve as one of our global women’s wear ambassadors beginning in 2019. We believe that this will help drive the momentum of our women’s business, further expand our women's consumer base and capture both Zendaya’s and our commitment to self-expression and individuality. Looking at the business, revenue for Tommy grew 11% and earnings rose 16%, primarily driven by strong revenue growth and expense leverage. International revenues increased 16% in the third quarter and comps were up 13%, again exceeding our expectations as Europe and Asia both posted outstanding performance. Beginning with Europe, performance continues to be robust, despite its challenging consumer backdrop in Europe. We continue to be impressed by the strength experienced across all channels; retail, wholesale, and digital. Notably, the recent turn in weather to more seasonal temperatures has been beneficial for our sales of cold weather categories, particularly sweaters and outer wear. As a reminder, our spring and summer 2019 order book is up over 10%, and this positions us very well for the upcoming 2019 fiscal year. The momentum in our Tommy Asia business also continues, both our China and our Japan businesses continue to deliver strong growth across all channels with exceptional performance in e-commerce businesses. Beginning with China, we see significant opportunity to expand Tommy in China as many of our lifestyle offerings are underpenetrated. While we did see some slowing in retail traffic, our business delivered strong performance overall, and we capitalized on the immense consumer demand to shop digitally. Our Super Brand Day with Tmall was exceptional, and we continue to be opportunistic leveraging our digital partnerships. Another brand highlight from the quarter was our TommyNow fashion show, which we hosted in Shanghai in September. The event was extremely successful and helped us to continue to grow our visibility in this market, which is driving consumer engagements toward the full breath of our lifestyle offerings. Overall, we remain energized by the strong opportunity to grow Tommy Hilfiger in China. The health of the brand continues to improve, and we believe that we can realize the full brand potential by growing our category offerings, investing in the business, operating more tier 1 and tier 2 cities directly and leveraging our local brand ambassadors. Finally, for Asia moving to our Japan business which experienced very strong results as we continue to invest in the market through our recent Tommy Icon acquisition event and our digital partnerships with Zalora. We continue to see strong performance out of our Japan business as we vote to our top line and the bottom line basis in this important market. Moving to North America, our overall revenues were up 3% and earnings increased 13%, driven by strong gross margin performance. Our wholesale business performance has had another outstanding quarter with strong sales through across all categories. Our wholesale customers continue to be excellent partners for us as they are giving us strong support to Tommy in terms of marketing, promotions and position of product on the floor. On the retail side, our comps were flattish. However, profitability improved as we were significantly less promotional than last year, resulting in a higher level of profitability. On the licensing side, we saw strong results across the board and in particular in the Tommy Hilfiger women’s business that’s being operated by G-III, we saw outsized performance there. Moving to Calvin Klein, our business came in below plan for the third quarter. Revenues increased 2% and EBIT declined 15%. While most of our businesses are performing very well from underwear to men’s and women’s apparel, tailored clothing, footwear and accessories, we did experienced some issues in our 205 collection business and in our Calvin Klein Jeans business as we offered more elevated fashion forward product at higher price points, particularly with our jeans re-launch, which did not sell through as well as we planned, resulting in more promotional sales and higher overall markdowns. Despite this, we remain confident around Calvin Klein’s long-term growth opportunities. From a brand health perspective, Calvin Klein remains extremely strong. Global brand awareness continues to be exceptional. The earned media value of our marketing campaigns was almost $160 million year-to-date with our ranking among our competitive accelerating two spots, putting us ahead of key peers. However, our tracking studies indicate opportunity in terms of Calvin’s consideration for purchase ranking, particularly for our collection and jeans businesses, which suggest that we have work to do on the product and marketing side of the business. Calvin is an incredible brand with tons of potential, but there are several execution issues that we are addressing to better capture the brand's top and bottom line opportunities. First of all, we’ve been disappointed that our investments in the 205 collection business have not delivered the results we expected. We will cut back on a number of these planned investments in the 205 collection business, and as we move forward we will retaking a more returns oriented commercial approach to this important business. Second, we will shift the focus of our marketing campaigns going forward, as they have been two skewed towards our higher and 205 line and the high fashion consumer. Further, we will focus on driving a digital-first approach to the brand. Importantly, marketing is one of the faster leverage that we can address. For holiday 2018, we are shifting more of our media spend from halo marketing to more commercial, digital and social media advertising. We have up the frequency of our post on social platforms like Instagram, and we are increasingly using micro influences and hosting local activation to drive meaningful engagement, particularly with millennials and GenZ. These changes are just the beginning of what you will see as we head into 2019. Currently, we believe that there are some elements of the new Calvin Klein jeans re-launch, which have been too elevated and too fashion forward for our core consumers, which lead us to taking earlier and deeper markdowns than we previously planned. From a product perspective, we went too far, too fast on both fashion and price. We are working on fixing this fashion miss and we believe that our CK jeans offering will be much more commercial and fashion right beginning in 2019, especially for the full 2019 season. Let me focus now on our third quarter segment results. Calvin Klein international rose 3%, reflecting healthy top line results in Europe. Consumers have a strong desire to purchase the brand and they have started to discover and purchase our newer product lines in Europe, including sportswear and performance. While these businesses will continue to ramp up over the next 12 months, Calvin Klein Europe continues to experience healthy growth and our new businesses are on plan. As we look to 2019, I would like to reiterate that our European spring 2019 order book is up 20%. Overall, we remain excited about the brand's long-term opportunity to expand its core product lines in Europe and capitalize on the white space opportunities we have identified. Moving on to Asia, our business in Asia experienced some softness during the quarter, which we attribute to a combination of the geopolitical issues and the consumer sentiment that are affecting the consumer in this region, as well as the consumer reception to the new jeans product. We continue to see digital as our fastest growing and best performing channel, especially in China, reflecting how consumer prefer to shop. In response to this, we continue to enhance our own digital experience and partner with the key pure play accounts in Asia to offer the best product, exciting capsule collections and deliver the best overall consumer experience. Moving to North America, we saw revenues up about 1% in the quarter. By channel our transit wholesale were very healthy. We continue to see strength across the majority of our product lines. In our directly operated businesses men’s underwear, women’s intimates and men’s sportswear was quite strong. From a licensing perspective, our tailored clothing, footwear and the women's apparel business from G-III were very strong during the quarter and continued to have outsized growth. Our North America retail business was challenging during the quarter. Comps declined 2%, reflecting the weaker traffic from international tourists, as well as the softness in the new jeans line. As we look to 2019, we believe that many of the issues that we face in Calvin Klein in 2018 will reverse. We are taking critical steps to offer a more commercial brand and product experience that our consumers want. Our Calvin Klein operating margins are not currently performing at optimal levels, and we believe that there is an opportunity to increase operating margins by 200 basis points over the next two years. The two key letters to deliver on this operating margin opportunity are; first and foremost, our ability to deliver more commercial fashion-right CALVIN KLEIN JEANS product. We are working hard on this design and merchandise issues, and we believe that we will see improvement in 2019, especially for the full season; the second is that we continue to re evaluate our investment spending and the overall expense structure associated with our 205 collection business. This process is well underway and we are taking current actions to ensure that we are well positioned to deliver 75 to 100 basis points of operating margin improvement in 2019. Finally, moving to our heritage business, which continue to perform very well for us. Revenues grew 8% in the quarter in line with our expectations, while comps were down 1%. Overall, we expect the revenue growth three years to be out about 2% for our Heritage businesses. We continue to be pleased with the performance of our dress furnishing and sportswear businesses as we believe that we are gaining market share as consumers are responding well to our enhanced fabrication, such a stretch capabilities and temperature activation. The new technologies we have added to our core intimates business are also driving solid results as our consumers love key franchises like our Wire-Free Easy Does It bra and our Cloud 9 COLLECTION. Digital continues to be a key initiative for our heritage brands division. We are growing our penetration with our department store partners online, and we continue to expand our partnership with Amazon to further enhance our business with them as the core offerings we sell in Heritage brands works very well on that platform. We have seen a nice response to-date on our Van Heusen and IZOD commercials. Van Heusen our celebrated our first of its kind sponsorship partnership with the UFC, featuring MMA fighters and new brand ambassadors, TJ Dillashaw and Stephen Thompson, which had digital and social rates that far exceeded our expectations. Additionally, IZOD launched its largest media campaign to-date featuring new brand ambassadors the Green Bay Quarterback Aaron Rodgers and comedian Cali Joseph from the Saturday Night Live production. This campaign is targeted at millennials and the campaign has performed very well to-date where we've seen excellent sales within our sportswear businesses. We're also excited to continue to work with these brand ambassadors for the holiday season as we look to continue to drive our outsized sales growth. Finally, as we enter the fourth quarter, our early holiday sales and margin results are running ahead of our financial plan. Our international businesses continue to see nice momentum with Tommy international comps up low double-digits and Calvin International comps running up a solid mid single-digits. We have seen a strong start to the North America holiday season with comps for Calvin Klein North America trending up one and Tommy North America trending up low single-digits quarter-to-date. We also continue to see strong performance in our wholesale business in North America and in Europe. We are well positioned to the balance of fourth quarter and believe given our underlying brand momentum and the strength across our businesses that we will continue to over-deliver against our financial plans. Our Calvin Klein business is a priority for us and I believe will be able to see significant top and bottom line growth as we head into 2019. And with that, I would like to turn it over to Mike to quantify some of the third quarter results and outlook.

Thanks, Manny. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release. Due to the 53rd week in 2017, comps to sell for 2018 and more appropriately compared on a one-week shifted basis. Comps store sales I mentioned for the third quarter are compared with the 13 weeks ended November 5, 2017 instead of the 13 weeks ended October 29, 2017. Our reported revenues for the third quarter were up 7% inclusive of a 2% negative impact from FX and in line with our guidance. Tommy Hilfiger revenues were very strong, up 11% inclusive of the 2% negative impact from FX and above our previous guidance. Tommy Hilfiger international revenues increased 16% inclusive of a 3% negative impact from FX. The Tommy international revenue increase was driven by strong performance in all regions and channels with comp store sales up 13%. Tommy Hilfiger North America revenues were up 3%, including 1% negative impact from FX with retail comp stores relatively flat. North America had significantly more full price selling in the current year quarter versus the prior year quarter, and yielded strong gross margins and operating margin expansion. Our Calvin Klein revenues were up 2% inclusive of 2% negative impact from FX in the quarter, and were below our previous guidance. Calvin Klein international revenues increased 3% inclusive of a negative 4% impact from FX. Our niche international comp store sales were up 1%. Calvin Klein North America revenues increased 1%, including a negative impact of FX of 1%. North America comp store was down 2%. As Manny discussed our Calvin Klein business was negatively impacted by our collection in jeans business. We have taken all appropriate action in the quarter and have lowered prices on slow-moving product creating a gross margin shortfall for the quarter. Heritage revenues were up 8% for the prior year and in line with our previous guidance. Our heritage retail business comp store sales was down 1%. Our heritage business performed well in the quarter but was unfortunately negatively impacted by the Sears bankruptcy. Our non-GAAP earnings per share of $3.21was $0.08 better than the top-end of our previous guidance. The EPS beat versus prior guidance was driven entirely by strong Tommy Hilfiger business. Interest and taxes for the quarter were as guided. We ended the quarter with inventories of 15% versus the prior year due to a shift in the timing of receipts as a result of the 53rd week in 2017, or 8% on an aligned calendar basis. We have also accelerated receipts to the U.S. sales as a result of potential new China tariffs, and we continue to increase our investments in basics and core product, particularly in the Tommy Hilfiger to Capitalize on strong business trends. In addition, at year-end we expect inventory levels to be in line with future sales growth. For the full year 2018, we are projecting non-GAAP earnings per share to be $9.33 to $9.35, an 18% growth over the prior year, which is a $0.10 increase at the top end and $0.13 increase at the low end compared to our previous guidance. And this is despite a reduction of $0.04 to our foreign currency translation benefit for the full year. Our new guidance at the high end was compared to our prior guidance reflects $0.12 of business improvement despite $0.06 negative impact resulting from the recent retailer bankruptcies in the U.S. and the UK. $0.02 improvement associated with interest in taxes, which is partially offset by $0.04 of unfavorable currency. Overall, we are projecting revenues to grow approximately 7% with an immaterial impact from currency. Overall, operating margins are expected to increase approximately 30 basis points for the company. Tommy Hilfiger revenues are planned to increase 10% inclusive of the positive impact of 1% related to foreign currency. Tommy Hilfiger operating margins are planned to increase about 100 basis points. We project Calvin Klein revenues to grow 7% with an immaterial impact from foreign currency. We are also planning Calvin Klein operating margins to be down about 70 basis points, which is a reduction of 20 basis points to our previous guidance. This reduction is a result of Calvin Klein business underperforming the sales and margin plans in the third quarter as a result of softness in our jeans and collection business. Calvin Klein operating margins for the fourth quarter are projected to increase about 70 basis points to the prior year. Our Heritage business is planned to have revenue growth of about 2% with operating margins relatively flat to last year, including the negative impact of the Sears bankruptcy. Interest expense for the year is planned to be about $117 million compared to the prior year amount of $122 million. This decrease is primarily as a result of lower interest 600 million Euro bonds issued in December, partially offset by higher interest rates on our variable debt. In 2018, we are planning to pay down around $200 million of our debt. Stock repurchases in 2018 are planned to be around $300 million. Our tax rate for the year is estimated to be between 13% and 14%. Additional IRS regulations are expected to be issued in the near-term related to the recent tax reform act. Our current estimates could be subject to change if the regulations defer from our current interpretation. Negatively impacting our fourth quarter earnings per share projections is an $0.11 unfavourable impact versus the prior year due to foreign currency translation. In addition, revenues are negatively impacted by about $125 million in the fourth quarter of 2018 compared to 2017 from the 53rd week and result in calendar shift. The $125 million reflects about $80 of revenue that does not repeat from 2017 into 2018 due to the loss of the one week of business in 2018 versus 2017, and $45 million of revenue that moves earlier in the year as the calendar shifts of high volume retail sales and wholesale shipping week out of the fourth quarter. Fourth quarter non-GAAP earnings per share is planned at $1.58 to a $1.60 and includes approximately $0.11 of estimated negative impact for foreign currency. Revenue in the fourth quarter is projected to decrease 4%, including the negative impact of 3% related to foreign currency. In addition, the impact of $125 million in the fourth quarter due to the 53rd week equates to 5% of revenue. When adding back the negative impact of foreign currency and the 53rd week impact, our fourth quarter revenue increase is approximately 4%; Tommy Hilfiger revenues are planned 4%, including negative impact the 4% for foreign currency; Calvin Klein revenues are planned 6%, including the negative impact of 3% related to foreign currency; Heritage revenues of planned down 2%. Interest expense is projected to be about $30 million for the quarter and taxes to be about 13% to 19% in the fourth quarter. And with that, operator, we will open it up for questions.

[Operator Instructions] And we'll take our first question from Erin Murphy with Piper Jaffray.

Manny, I wanted to start with you, just focusing on the Calvin Klein business. I mean, you've clearly invested a lot behind this brand from talent, marketing product, and with the setback you're seeing in denim, and kind of the halo areas of brand, what gives you the confidence that you have the fix under control? And then as we go into '19, what are some of those guideposts that we should be looking at whether it's pricing or product or even how you're thinking about evolving the marketing message?

I think I need to say upfront, and when you think about what's happening within the Calvin Klein business, I think first and foremost, we recognize we have a product issue, and we recognize that that product issue really centers from a material point of view on the jeans business. I can only say it so many times, but I have some metrics that I just would like to share with everyone is I really feel strongly that there is not a brand issue here in any way. When you think about the Calvin Klein brand, it is universally one of the most well known and understood brand. It has a global brand awareness of about 90%. That puts it at the top echelon of brands. It also has a very high relevance rate and intent to purchase around its consumer, which is just quite remarkable for the brand and the relevance is about 65% when we talk directly to our consumers, and that’s consistent across the U.S., rest of North America, and as you move to Europe. And as you get to Asia, obviously, the awareness goes down a little bit like with all global brands as that -- in those markets, particularly China grows more and more, that's why we feel it’s such a strong growth market for us. So, I think as you know, as I tried to say on the call, I think there's two areas that we really need to focus on, and I think if you know us as a management team, we are very aggressive when we see a problem to really go after and address it. So, on jeans side, for the last 2.5 months, we've been working very hard on the product as we look at 2019 adjusting and we’re not re-designing, but adjusting the 2019 spring buys and merchandising plans, trying to get our price offerings back in line. I think we went too far and too high right out of the gate and adjusting some of that as we go into 2019. And as we go on to fall, we really completely reengineered the product and the design and the approach to it getting the feedback from the local markets both in Europe, North America, and Asia, because it's different in different markets, how we could position the brand. So, I think we truly understand the product issue around jeans. Secondarily, as we talked about over the last three years, we've been making significant investments in the Calvin Klein brand, particularly at the top of the pyramid, the brand halo in the 205 collection business, and I think based on my comments over that period of time, if you were to quantify that number, over this three-year period, we’ve probably invested between $60 million and $70 million into that business, and we've been reasonably growing into that increased expense structure. As we look at it now, we don’t think that we’re getting the full pay back on some of those investments, and we're taking a really hard look on the planned investment spendings that we had as we looked into 2019 and taking a hard look at that whether those are necessary, should we redeploy some of those investments, or should we take it out of our expense structure, and looking at our overall expense structure associated with 205 and overall Calvin Klein. And it gives us great confidence based on the investments we've made in how we know to run the business that there’s real opportunities to trim that down, redeploy those assets, and we’re highly confident as we go into 2019 that we can improve operating margins in the Calvin Klein business, somewhere in the neighborhood to 75 to 100 basis points. You asked me what should we watch, I think as we go into -- somewhat into the fourth quarter but particularly into 2019, we need to watch gross margin and we need to do a good job of explaining what's going on because sometimes driven by mix, geographic, the U.S., which is our lower gross margin business versus some of our international pieces, we need to be even more transparent about what's going on in that gross margin, and we will be, but I think that will be a key. But fundamentally are we delivering on the operating margin expansion of the 75 to 100 basis points that we feel confident we can deliver. We are going to have to continue to message that. I guess, on a personal level, for me this is a credibility issue and I really feel strongly about what needs to be done and the actions that need to be taken as we go forward. So we will reposition the expense structure, we will reposition the brand positioning and the focus of our marketing as we go forward. And like always, we’re very aggressive in moving in and out of inventories, that’s why I think you saw such a big gross margin hit in the third quarter for Calvin Klein is because we were aggressive about marking goods on the floor, providing the gross margin reserves that we needed to get through the fourth quarter as well and into spring, so we've tried to be as aggressive as we can and as transparent as we can about that.

And I appreciate the candour, thank you. And then just a follow up, Manny, on China. You mentioned you still outperformed your expectations in the market but you are starting to see traffic flow a little bit. Is that in the mainland, is that in the tourist markets? And then when did you start to see that flow down? Thank you so much.

It seems so coincided with the trade tensions as you would expect. Clearly, as I've travel throughout Asia but in particular in China, there is real concerns about what's going on there. I mean, I know everybody quantitatively is thinking about tariffs. But I consistently been talking about that’s issue and that’s managed as we try to have as flexible sourcing base as possible. And if we have time, meaning that some lead time with some of the tariff concerns we'll be much more effective in managing that. But I guess secondarily what I'm concerned about is Calvin Klein and Tommy Hilfiger are two great American brands and if there is tensions in different parts of the world about America, it's position in the world, I think in and of itself, it does create some port. We haven’t seen that kind of a backlash anywhere, but what we have seen is in China is just the consumer has slowed down from the accelerated pace we saw in the first two quarters of 2018. So we’re still comping positively, we’ll still move but the traffic levels in the store are not what they were in spring season and it does give us some pause as we go forward and we’re managing that business a little tighter than we have in the past.

Moving now, we’ll take our next question from Bob Drbul from Guggenheim Securities.

I have a Calvin jeans questions for you. I guess when you take a step back 90 days from the last quarter and just walk us through. Is the inventory -- so you got rid of some of the inventory coming out of the second quarter that was order inventory. Can you walk us through when you think about the supply demand equation for the denim business, where you think we are in terms of the purging of some of this product that isn’t working? And when it turns -- so you talked about changing the buys into the spring. When you walk us through the ability to really impact the product or get it more equilibrium in terms of where the product is. Can you just walk us through the steps that you still need to take? And I guess the second question is just related is. Is the creative sort of the design organization with some of the changes that you see necessary on the denim business? Are they signed up for these changes that you need to see happening?

So, I guess let me take in pieces. On the inventory position and as we’ve gone forward, I think as good stock gets delivered in August, I guess the reaction we saw on the floor, the sell throughs weren’t as strong as we had anticipated. And given that reaction and we feel that there was price resistance on some of -- we’re taking price up on some of our core denim and some of our key categories 20% to 25%, and we felt we've built product attributes that we want that the reaction from the consumer either because of the fashion component and design or just the price positioning, we're just not getting the weekly sell through we anticipated. The initial reads in early August were fairly good, but that was just really the start of the season as the delivery start of the come through, we basically came to conclusion we were too fashion forward and our price positioning was too high. And given that is we’ve been very aggressive about moving through inventory and also providing more of that, not just taking POS markdowns. We’re actually either permanently -- we've taken markdowns on price on the floor or we've provide for those markdowns for the balance of the 2018 fiscal year. So I guess we could have -- over a number of quarters and what we’ve tried to do is get the pain behind us on what’s actually in the pipeline and being deliberate on the floor and the warehouse on the boat soon to be delivered in for us November and December. So we’ve tried to address that. By the end of fiscal '18, by the end of January, our inventories will be in the right position and priced appropriately on the floor that the jeans they will not be an issue of carryover inventory on the floor from a margin point of view. That’s been all captured in our quantification of this problem, both in the -- particularly in the third quarter, but also plan for the fourth quarter. So we think we have that behind us. Now, the real question. Now, we get the product and design as it goes forward. Obviously, you know lead times in this industry. So we’re able to impact spring to a degree in the architecture of the business but not necessarily at the same level from a pure design aesthetic point of view. So we think we’ve repositioned the pricing appropriately as we go into spring. We think the product is more driven less fashion and we rebalanced to buy but I think when you really see the big changes in the design is as it goes forward in for selling season. Last piece about talent and where we are, our design center of excellence is in Amsterdam for our jeans business, and I think that is fully staffed, our teams are there and a lot of the players there also do Tommy jeans and understand the sourcing and dynamics of the market. So, we have the talent in place and key designed talent in place to really deliver against that whole jeans assortment, and we need to get back to what is Calvin and the core DNA of the brand.

And Manny, as you get through all the denim product that is off in mist. Is this disposition through like online with Amazon or your outlet business or off-price? Can you just talk us through how you manage it from the brand perspective going forward now?

Bob, this is all happening in channel. This is -- so we're clear. This is not like we got a pile of inventory, we have got millions of dollars of inventory and there is a flow to this business. And we’re adjusting that flow as it goes forward. And we do have, obviously -- we didn’t wake up to this problem today, we’ve been tracking and we've recognizing and dealing with it. So I’m confident as we get through 2018 that this all go through. And it’s going to be captured in the seasonal promotions that go on in the channels of distribution where the goods are at department stores and our own retail stores. This is not we got a swag of inventory we got to burn or anything like that. This is current inventories but it’s just not getting the sell-throughs that are there. And when you said of being promoting at lower rates, so we’re going have to promote a little bit harder but it will be part of the overall presentation that’s going on at retail during this highly promotional time of the year. So, I don’t think it has any brand damaging issue and I think we’ve tried to be as conservative as we can to build it all into the guidance.

And we’ll take our next question from Matthew Boss with JP Morgan.

So Manny, on the Calvin business, I guess what’s your confidence in the 70 basis points CK margin expansion forecast for the fourth quarter? And then as we exit this year, anything at all that changes your view into this brand is a mid to high-single-digit top-line grower next year and beyond?

I think on the 70 basis point improvement, I guess that’s implied in our annual guidance. I think, obviously, there’s two components to that. I said the first piece of that is on the gross margin side. I think there we’re looking for something between 10 and 20 basis point improvement in the Calvin Klein business gross margins. I think given the type of reserves and markdown reserves and allowance reserves we built up in our third quarter, I think we are very confident. More importantly, given the trend of business right now that we're seeing through November, we're outperforming our sales plan and we’re outperforming our margin plans in the businesses as we go forward. So that gives us a lot of confidence as we go forward. There is still a big Christmas season to go and everybody knows this is extra week in December. So we don’t want to get ahead of skies, but it feels good now. I think we got a brand, a product that that’s problematic positioned on the floor at the right retail selling price that the consumer is really reacting to it. So I think we’re getting momentum and velocity on the brand and I think that gives us confidence. On the SG&A side, we don’t miss SG&A. We know what the numbers are, it's the way we have our marketing plan. It’s the way we feel about the business and how we’re moving forward. So given the investments and where we are, we are highly confident about the 70 basis points.

And then just a follow-up for the total company, I guess, Manny, what should comfort today in your mid single digit top line and 13 to 15 bottom line algorithm, maybe as we look to next year?

I’m not going to give out all the guidance, but I would say nothing has fundamentally changed about our algorithm. I can't factor in especially the unknown and there is two big unknowns for us, is current and a related, to great extent all that’s going on with trade, I don’t have a crystal ball, I can’t factor that into where we are. Hopefully, that settles down and there is a solution. And what’s going on with currencies, which I think as a direct result of a lot of what’s going on with the trade tension as the U.S. dollar over the last four or five months has continued to strengthen, which just mathematically puts pressure on such a big piece of our business as we try to -- when we translate that forward. We've been able to, in 2018, even with some of the issues that we've had to deal with, we've been able to make up for currency hits that probably total somewhere about the 35% range this year against our initial guidance back in March and we've been able to cover all of that and continue to raise our guidance for the year. So there are levers to be pulled with some of the stuff. But the algorithm for PVH overall is impact and we still have great confidence as we go forward. And I talked about the two external issues that has the potential to pressure that for 2019.

Moving on, we will take our next question from Michael Binetti from Credit Suisse.

Thanks for all the help during the transparency, Manny, very, very helpful, I know you had a tough quarter there for Calvin. I just want to follow up on that quickly. Is the FX and the bankruptcies that we've seen recently and then some of jeans overhang issues. You've walked us through how those extend into this spring, you've made some changes a lot more confident reversing that by fall. Is there anything that gets us to a point where we’re saying 13% to 15% next year is going to be lower than that in the currency and anything that we should think about today related to those things that we're going to enter the year with perhaps?

I think you need to be cognizant of currencies. You need to cognizant of what’s going on in tariffs. I don’t think the bankruptcies that we experienced this year is -- the bankruptcies that we experienced this year really shouldn’t impact business at all. The Sears business is relatively small. I’m not -- again not a crystal ball. But if Sears survives in some form it’s going to be much smaller. The House of Frazer situation seems to be a real restructuring and they seems to be coming out of it, better capitalized as they move forward. So I don’t think that will be a negative impact as well. So, those are the factors outside of everything that’s going on. And when we get to the first quarter of next year, the beginning, we’ll give you the appropriate guidance. But we’ll also try to be as transparent as we go through this as things develop in the market to keep you informed about how this might impact us in those key areas as we go forward.

I guess just on the currency, as you guys – there has been some changes and I know in the currencies that are a little bit tougher to hedge that make the currency mile that we run a little bit harder to think about lately. So as we think about you guys have such a big input, if currency stay where at today. How should we walk through the transactional effects into next year? I know that’s operated traditionally quite a lag, maybe anywhere from 12 months to 18 months even, as you look that...

I think transaction next year will be relatively minimum I mean, again, because we’re hedged. And I think we understand where that is. And if we are -- if it’s -- it will probably be a small headwind if I had to guess right now but a lot depends on what happens as we go forward. We’re hedged out as far as 12 months on certain purchases, but it builds over the year, as you know. It’s really the translational that’s the wild card, because obviously that is something we don’t hedge and I don’t think most companies hedged And particularly, in the first half of the year, our biggest currencies, it’s not the small currency you’ve talked about, it’s a big currencies, it’s the Euro, Pounds, the Canadian Dollar, The RMB, the China currencies, The Brazilian Real. If you look at where currencies were when we initially gave guidance back in March of this year for the current year, the Euro, as an example, was $1.24. Today, the Euro is $1.13. So, that is going to be an issue if there is not movement in that as we go forward. I don't think I'm telling you anything that everyone doesn't know. And there's not much that I think you can do in the short-term to manage against that. We manage our expenses but there's only so much you can do because you have to manage the business in the currency that it's being supported in. So, again, just to summarize it, I don't think that transactional issues, because we're hedged out, is a real issue for us but I think the concern might be more on the translation side.

Okay. Thank you very much.

And I think -- I guess I would just add, because this always comes up, for a U.S. company that's U.S. dollar-denominated, 50%-plus of our sales is coming out of the international markets with the currencies I discussed and over 60%, 65% of our profitability is coming out of those markets. And that's why currencies present a bigger issue relative to, say, some of our competitors in this market here who have a much smaller geographic diversification than we do.

Yes, sir. Moving on, we'll take our next question from Chethan Mallela from Barclays

It sounds like there's a big distinction between the performance of the Calvin Klein Jeans and Collection businesses and just the balance of that brand. So, can you maybe just talk about the magnitude of the differential that you saw on the top and bottom line between Jeans and Collection versus the balance of Calvin in the third quarter? And just how you're thinking about that relative performance into the fourth quarter?

So, I guess I'm not going to get into profitability by product category but let me just try to put the Calvin business, the Jeans business in size perspective so you get a sense. And also, last night on Cramer, I did the math in my head and I was wrong when I said that Jeans represented 10% of our business globally. It represents about 15% to 16% of our business globally. But for PVH, from an owned and operated, when you distinguish between half of our business, more or less, is licensed and half of our business is directly operated by us, so it represents 15% to 16% of our overall Calvin Klein brand business, retail sales globally, but for the businesses that we operate directly that we report sales on, it represents about just over 30% of our business, to give you a sense. And it has a bigger financial impact, given that, on our own P&L. So, that's a bit of a background. So, what I would say to you is, look, we're seeing -- all you have to do is just go to Macy's or go to Dillard's or some of the key department stores and see the Calvin Klein presentation at retail and you'll see, on the women's side of the floor, it's been spectacular. The results for a brand that's as big as it is at Macy's, in particular, we continue to see -- and G3 will talk about it in their conference calls as they go forward -- but we continue to see very strong growth out of the Calvin Klein business and our partner, G3, just does an outstanding job. The men's tailored business continues to be very strong. Our Calvin Klein dress furnishings business continues to be very strong. Our sportswear business is performing on the men's side the way we look at. Our footwear business continues to be a good business for us. And, obviously, the crown jewel of our portfolio is our men's underwear and women's intimates business and that business is just off the charts and you can't help but walk in the store and just recognize that. So, to give you a perspective, and my point being is I know this Jeans issue is something we clearly have to deal with and it's a key part of the brand, but I think, at time, it does overextend its importance to the overall brand as we move forward. So, I think it's important to share that.

And just one quick modeling follow-up. I know that some of this is still in flux but should we be thinking about the fiscal '18 tax rate, where we're looking to land at the end of this year, as a reasonable assumption to use on a go-forward basis?

Look, guidance is still coming but the model did imply that and that's where we are at this point. We're still waiting. Regulations are being firmed up. There's so many moving pieces. But I think that's a safe assumption for now.

Moving on, we'll take our next question from Tiffany Kanaga from Deutsche Bank.

Hi. Thanks so much for taking our questions. I think we've touched on this tangentially but when you discussed 200 basis points Calvin Klein operating margin improvement ahead, would you outline what's also baked into those plans in terms of retailer bankruptcies, as well as FX, tariffs, and global macro risks? And, additionally, would you break down the opportunity between North America and International? Thanks.

Tiffany, I'll do this. I'm not counting on any bankruptcies as we go forward, obviously. It'll be what it'll be. There's always something going on and I don't think that really should be meaningful unless there's some major issue out there that I'm not aware of. So, I don't think bankruptcies are an issue. I think, geographically, and we've said it, International will grow faster than the North America business, only because the North America business, on a relative size level, is so much bigger and the product categories here in North America are much more developed. We always are talking about the European opportunity for Calvin Klein. And what I continue to say is, today, the Calvin Klein brand for us is doing just under $1 billion in sales in Europe. The Tommy business is more than twice as big as the Calvin business within Europe and we think there's the opportunity to be as big in Calvin as we are in Tommy long-term. Developing our men's and women's sportswear business, developing more of a performance business, our tailored clothing, our footwear and accessory opportunity that exists for us. It's the only region in the world where Tommy is larger than Calvin. So, it gives us a lot of confidence. Plus, we have the management team, the expertise, and the model in place with our operating platform in Europe to really take advantage of that and have the credibility with our key retail partners there to have two of the premier brands in the world to really use as leverage as we go forward. So, we have a tremendous amount of confidence that we can deliver against that. And just, not to go back too far in history, but when we took over that European business five years ago, it was $500 million and it was losing money. And today it's $1 billion, making double-digit operating margins. So, that gives us big confidence. And the continued growth within Asia, just as that market continues to grow, driven by China and the related greater China markets as we go forward, there's just significant growth and white space opportunities for the brand. And just like Europe, the product category offerings are much more limited overseas in Asia than they are as developed here in the United States. So, I think that's where we are. And then keep in mind that the operating margins internationally for Calvin and Tommy are higher than the operating margins of our North American business. So, I think that's what gives us confidence as we move forward.

All right. Thanks so much.

Thank you. Operator, we're going to take one more question. It's already after 10:00 a.m.

Certainly. We'll take our final question from Kate McShane from Citi.

Hi. Thanks for taking my question. Just one small question with the tourism softness in the U.S. that you had mentioned. Is that across the board in tourism or was it just specifically with the Chinese tourists?

For us, I guess there's two big categories that we see. It's what you touched on, which is China, but it's also Brazil. Given what's gone on there in this hemisphere, particularly this time of year, that's always a strong consumer for us, particularly for our two brands that have great market position in Brazil, both Tommy and Calvin. I think we outsize performance with that target consumer. So, it's really that South American consumer and it's the China piece that we've seen slow down. The European tourism we haven't seen really slow down at all in the United States. But I think a number of people have talked about it on their calls that that international piece is not as strong as it was in the first half of the year.

Okay. Thank you for that. And then I just wanted to ask a quick question. Tariffs, I know, are a big unknown. I just wondered if you could maybe quickly walk us through how much you're thinking you can mitigate, in terms of pushing back on your suppliers and finding efficiencies in supply chain versus what would be your view on pricing if tariffs were to be enacted here?

Kate, let me put it into some context first. If you look at imports for apparel and accessories from China into the United States, the last statistic I saw -- it's a bit of a moving target -- is about 40% of imports for the U.S. market come from China. We are, as a company, we are below 20% of our production for North America. For U.S., it's about 17% or 18% and we're constantly adjusting that. If you were to look at us three years ago, we would have been over 40%. We have been strategically moving, because of cost pressures -- because we didn't like the way that market was developing for the U.S. market, we've used our China sourcing base for China and also for the European market and that's been a really strong strategic move for us, particularly in the environment we're in. But, given our size, 17%, 18% of our production, which represents about 8% or 9% of our cost of goods sold globally, is still coming out of China and that number is about $75 million of tariff impact to our cost of product if it comes through at 25%. So, it's not insignificant. I think now we get into a couple of things. If it happens and the tariff is put on, if it happens and it happens that the administration makes the decision we're going to raise all tariffs, we're going to do 25%, and we're all going to do it on January 1st, we've got a problem in the short-term. There's no time to react. You can't even change tickets to adjust it on the floor to move your retail selling price if you so desired to do that. The purchase orders are already written with all of the retailers and I'm sure we're going to get pushback to say, "Well, we've got a deal." It's not logical to me that that's what would happen but everyone would be dealing with that issue. Now, if it was more like this fall and an announcement that tariffs are going to go in place and it's going to be 10% in April and then if nothing's resolved, it's going to be 25% in July -- I'm making this up -- then there's an opportunity to start to really mitigate as we get into the second half of the year and, clearly, into 2019. So, I do think, if tariffs come, it's going to do two things. It will pressure cost and create inflation on the goods from China but we also have to be realistic. It will also create inflation globally for products coming into the United States because if Vietnam is now more in demand, there's going to be cost increases coming through as we start to place production there. So, that's going to have to valued. So, I think this entire exercise on tariffs has got the potential to create some real inflation in the apparel and accessory area. And there is going to be some movement to be more efficient but there is also going to be, unfortunately, some pain to the consumer. And we are going to have to raise prices. What does that do to demand? I mean, we could run through all these theoretic exercises, and be assured, we're looking at it, but that's the exercise that really needs to happen.

Thank you.

Thank you. And with that, I think we're going to close the call. I want to wish everybody a healthy and happy holiday season. Happy Hanukkah, Merry Christmas, everyone, and a healthy and happy New Year to you and your families and we look forward to speaking with you in our fourth quarter press release in March. Have a great day. Thank you.

And, again, that will conclude today's conference. We do thank you for your participation and you may now disconnect.