Executive Summary / Key Takeaways

• PVH Corp. is executing its multi-year PVH+ plan to elevate its core Calvin Klein and Tommy Hilfiger brands and drive profitable growth, demonstrating progress in brand engagement, product execution, and cost discipline.
• First quarter 2025 results showed revenue ahead of guidance, but a significant net loss driven by noncash goodwill and intangible asset impairments ($479.5 million), coupled with gross margin pressure from macro headwinds, promotional environment, and temporary operational issues at Calvin Klein.
• Management reaffirmed full-year 2025 revenue guidance (flat to slightly up) but lowered EPS and operating margin outlook, citing the impact of tariffs, increased promotional activity, and the Calvin Klein operational challenges.
• Despite near-term pressures, the company anticipates sequential improvement in profitability throughout 2025, driven by Growth Driver 5 cost savings initiatives (targeting ~200 basis points realized by year-end) and the expected resolution of Calvin Klein's operational issues, targeting an exit to 2025 with double-digit operating margins.
• Key risks include persistent macroeconomic weakness, the impact of tariffs, uncertainty surrounding the China MOFCOM investigation, and the successful execution of the Calvin Klein operational turnaround and Growth Driver 5 initiatives.

Setting the Scene: An Iconic Legacy Adapting to a Dynamic Market

PVH Corp. stands as a titan in the global apparel industry, boasting a history stretching back over 140 years. Evolving from its origins, the company has strategically honed its focus on two globally recognized lifestyle powerhouses: Calvin Klein and Tommy Hilfiger. This strategic pivot, underlined by recent divestitures of its Heritage Brands businesses, is central to the company's multi-year growth blueprint, the PVH+ Plan. Launched in April 2022, the PVH+ Plan aims to transform Calvin Klein and Tommy Hilfiger into the world's most desirable lifestyle brands and position PVH as a leading brand-building group in its sector. This ambition unfolds across five key growth drivers, including enhancing product, deepening consumer engagement, optimizing the marketplace, building a data- and demand-driven supply chain, and driving efficiencies to fuel growth investments.

In the competitive arena, PVH operates alongside formidable global players such as Ralph Lauren (RL), Gap Inc. (GPS), VF Corporation (VFC), and Tapestry, Inc. (TPR). While Ralph Lauren (RL) competes in the premium lifestyle space with a stronger luxury emphasis and higher average selling prices, PVH's portfolio, particularly Tommy Hilfiger, overlaps in premium casual wear. Gap (GPS) competes more directly in broader casual apparel, leveraging significant operational scale and cost efficiency in retail. VF Corp. (VFC) challenges in activewear segments, often demonstrating faster product innovation cycles and advancements in material technology. Tapestry (TPR) is a key competitor in accessories, a category where Calvin Klein also has a presence, with Tapestry (TPR) often exhibiting higher gross margins driven by its luxury accessory focus.

PVH's competitive advantages are rooted in the immense global brand equity of Calvin Klein and Tommy Hilfiger, translating into strong consumer loyalty and a foundation for pricing power. The company also emphasizes cost discipline and supply chain efficiency, aiming for lower production costs per unit compared to some rivals. However, PVH faces vulnerabilities, including a lag in the speed of product innovation compared to some competitors like VF Corp. (VFC), and potential technological gaps in areas like material science, which could impact product performance and sustainability metrics. The company's strategic response involves leveraging its brand strength through impactful marketing and focusing on operational efficiencies (like IT consolidation and logistics streamlining) to mitigate cost pressures and invest in closing innovation gaps.

While specific, quantifiable technological differentiators in product materials or manufacturing processes are not extensively detailed compared to some competitors, PVH's strategic focus on becoming a "data and demand-driven company" highlights a key area of technological investment. Initiatives like building a "single global technology stack" and improving systems and automation as part of Growth Driver 5 are intended to simplify the operating model, drive efficiencies, and enable more cost-effective ways of working. These efforts aim to enhance planning, buying, allocation, and overall supply chain responsiveness, ultimately contributing to better inventory management, reduced costs, and improved profitability. The stated goal of these Growth Driver 5 actions is to deliver significant annual cost savings and contribute 200 to 300 basis points of operating margin expansion over time, with approximately 200 basis points expected to be realized by the end of 2025 compared to the prior year's fourth quarter. This technological focus on operational efficiency and data utilization represents PVH's approach to building a competitive edge "behind the scenes," complementing its consumer-facing brand-building efforts.

Operational Execution and Recent Performance

The PVH+ plan is actively shaping the company's operational execution. A significant undertaking has been the centralization of Calvin Klein's global product creation capabilities in New York, with Spring 2025 being the first season under this new structure. While strategically critical for achieving a single global brand vision and unlocking potential, this transition initially presented transitory operational challenges, including extended product development timelines, constrained sourcing and shipping options, and pressured production costs. Management acknowledges these issues contributed to margin headwinds, particularly in the first half of 2025, but expects sequential improvements for Fall 2025 and full resolution by Spring 2026.

Simultaneously, PVH is systematically bringing previously licensed product categories back in-house from G-III Apparel Group (GIII) in North America. The relaunch of Calvin Klein women's sportswear and jeans at US Wholesale in Spring 2025 marks a key step in this multi-year process, aimed at gaining greater control over brand expression and unlocking growth potential, despite the initial impact of transitioning from a higher-margin licensing model to a lower-margin wholesale model.

The company's commitment to driving efficiencies is embodied in its multi-year Growth Driver 5 initiative, which commenced in the second quarter of 2024. This program focuses on streamlining the operating model through centralizing processes, enhancing IT infrastructure (targeting a single global tech stack), redesigning the global distribution network (including consolidating North America warehouses and in-housing e-commerce distribution), and optimizing support functions. These actions are designed to yield substantial cost savings and improve operational leverage.

Recent performance reflects the interplay of these strategic initiatives and a challenging external environment. For the first quarter ended May 4, 2025, PVH reported total revenue of $1.98 billion, a 2% increase compared to $1.95 billion in the prior year period, exceeding guidance. This growth was driven by a 5% increase in EMEA revenue (5% reported, 4% constant currency) and a 7% increase in Americas revenue (7% reported, 7% constant currency), partially offset by a 13% decline in APAC revenue (13% reported, 11% constant currency) and a 2% decrease in Licensing revenue. The Americas benefited from the Calvin Klein women's sportswear and jeans transition and earlier wholesale shipments, while APAC faced headwinds from the timing of Lunar New Year and a difficult consumer environment, particularly in China.

Despite the top-line beat, profitability faced significant pressure. The company reported a net loss of $44.8 million, a stark contrast to net income of $151.4 million in the prior year. This loss was heavily influenced by $479.5 million in pre-tax noncash goodwill and other intangible asset impairment charges. These impairments, primarily affecting the Americas ($7.6 million) and APAC ($418.4 million) goodwill and Australia license rights ($53.5 million), were attributed mainly to a significant increase in discount rates reflecting elevated risk premiums.

Gross profit margin declined by 280 basis points to 58.6% in Q1 2025, down from 61.4% in Q1 2024. Approximately 50 basis points of this decline resulted from the license transition to wholesale, while the remaining 230 basis points were driven by unfavorable channel mix, increased promotional activity, higher freight costs, and discounts related to Calvin Klein product delivery delays stemming from the operational centralization. SG&A expenses as a percentage of revenue improved by 50 basis points to 51.6%, benefiting from Growth Driver 5 actions and favorable channel mix, partially offset by restructuring costs and unfavorable foreign exchange. Operating margin for the quarter was significantly impacted by the impairments, resulting in a loss before interest and taxes of $332.2 million, compared to income of $205.1 million in the prior year. Excluding the impairment charges, operating performance faced pressure from the gross margin decline, partially offset by SG&A efficiencies.

Liquidity saw a notable decrease, with cash and cash equivalents falling by $557.0 million to $191.0 million at May 4, 2025, from $748.0 million at February 2, 2025. This was primarily due to $561.0 million spent on share repurchases, including accelerated share repurchase agreements funded partly by $115.0 million in short-term borrowings. Cash used in operating activities was relatively flat year-over-year. The company maintains approximately $2.0 billion in available borrowing capacity and is exploring options to refinance its $500.0 million senior notes due in July 2025.

Outlook and Forward Trajectory

Looking ahead, PVH's outlook reflects a cautious stance in the face of persistent external headwinds, while maintaining confidence in its ability to drive sequential improvement through disciplined PVH+ execution. For the full fiscal year 2025, the company reaffirmed its revenue guidance, expecting it to be flat to increase slightly on both a reported and constant currency basis compared to 2024. Management noted that improved exchange rates suggest reported revenue is more likely to land at the higher end of this range.

However, the outlook for profitability was revised downward. Full-year non-GAAP EPS is now projected to be in the range of $10.75 to $11.00, a significant reduction from the prior guidance of $12.40 to $12.75. The full-year operating margin is projected to be approximately 8.5%, down from the previous expectation of flat to slightly up compared to 2024's 10.0% margin. This revised outlook incorporates the estimated net negative impact of recently enacted U.S. tariffs (approximately $65 million unmitigated impact to EBIT), a more promotional market environment, and the incremental impact of the Calvin Klein operational challenges.

For the second quarter of 2025, PVH projects revenue to be up low single digits reported and flat to up slightly constant currency. Gross margin is expected to decline by 300 basis points, reflecting the continuation of Q1 trends and an estimated 60 basis point impact from tariffs, with mitigation strategies not expected to have a substantial effect until the second half. SG&A expenses as a percentage of revenue are expected to decrease by approximately 100 basis points due to Growth Driver 5 savings. This results in a projected Q2 operating margin of approximately 6.5% to 7.0%, down 200 to 250 basis points year-over-year, with EPS in the range of $1.85 to $2.00.

Despite the near-term pressures, management remains focused on driving improvement in the second half of the year. They anticipate the impact of the Calvin Klein operational issues to lessen, Growth Driver 5 cost savings to become more impactful (targeting ~200 basis points realized by year-end compared to Q4 2024), and benefits from stronger Fall 2025 product assortments and improved European order books. This expected trajectory is aimed at achieving a double-digit operating margin exit rate for 2025, positioning the company for a stronger start to 2026 with higher on-time deliveries and improved product margins.

Risks and Challenges

The path forward for PVH is not without significant risks. The uncertain and increasingly challenging global macroeconomic environment, characterized by weakening consumer sentiment, lower traffic, and elevated promotional activity, poses a fundamental risk to demand and profitability. The recently enacted U.S. tariffs introduce a direct cost headwind, and while mitigation strategies are planned, their full effectiveness is not guaranteed.

The ongoing investigation by China's Ministry of Commerce and PVH's placement on the List of Unreliable Entities presents a material uncertainty. Although no specific measures have been imposed yet, potential restrictions on business activities in China could significantly impact revenue and profitability in a key growth market for both Calvin Klein and Tommy Hilfiger.

Internally, the successful resolution of the transitory operational challenges stemming from the centralization of Calvin Klein's global product creation is critical. Delays or unexpected complications in this process could further pressure margins and impact product flow. Similarly, the realization of the targeted cost savings from the Growth Driver 5 initiatives is essential to offsetting headwinds and achieving planned margin expansion. Execution risks associated with large-scale operational and IT changes could impact the timing and magnitude of these savings.

Furthermore, the volatility of foreign currency exchange rates can impact reported results, and fluctuations in financial markets could lead to significant noncash actuarial gains or losses related to retirement plans, potentially creating earnings volatility.

Conclusion

PVH Corp. is navigating a complex period marked by the disciplined execution of its strategic PVH+ plan against a backdrop of significant macroeconomic and operational headwinds. The first quarter of 2025 highlighted both the company's ability to drive revenue growth ahead of expectations and the substantial impact of external pressures and temporary internal challenges on profitability, underscored by significant impairment charges.

The revised full-year outlook reflects a realistic assessment of the current environment, with lower expected earnings and margins in the near term. However, the core investment thesis hinges on the company's ability to leverage the strength of its iconic brands and the operational improvements driven by the PVH+ plan, particularly the cost efficiencies from Growth Driver 5 and the expected resolution of the Calvin Klein operational issues. The targeted sequential improvement throughout the year and the goal of exiting 2025 with double-digit operating margins signal a potential inflection point.

Investors should closely monitor the execution of mitigation strategies against tariffs, developments in the China MOFCOM situation, the progress in resolving the Calvin Klein operational challenges, and the realization of Growth Driver 5 savings. While the near-term outlook is pressured, the successful implementation of PVH's strategic initiatives could position the company for sustainable, increasingly profitable growth in the long term, leveraging its brand power and enhanced operational capabilities in a competitive global apparel market.
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