PVH Corp. Reports 2013 Fourth Quarter and Full Year Results and Announces 2014 Outlook

  • FOURTH QUARTER NON-GAAP EPS OF $1.43 EXCEEDED GUIDANCE OF $1.40; GAAP LOSS PER SHARE WAS $(0.46)
  • FULL YEAR NON-GAAP EPS OF $7.03 EXCEEDED GUIDANCE OF $7.00; GAAP EPS WAS $1.74
  • COMPANY MADE $500 MILLION OF DEBT REPAYMENTS DURING 2013
  • 2014 NON-GAAP EPS PROJECTED TO INCREASE TO $7.40 TO $7.50, DESPITE ONGOING INVESTMENTS AND AN UNCERTAIN MACROECONOMIC ENVIRONMENT

Business Wire

NEW YORK--(BUSINESS WIRE)--

PVH Corp. [NYSE:PVH] reported 2013 fourth quarter and full year results.

Non-GAAP Amounts:

The discussions of results in this release that refer to non-GAAP amounts exclude the items which are described in this release under the heading Non-GAAP Exclusions. Reconciliations of GAAP to non-GAAP amounts are presented later in this release and identify and quantify all excluded items.

Overview of Fourth Quarter Results:

  • Earnings per share on a non-GAAP basis was $1.43, which exceeded the Companys guidance of $1.40, as compared to $1.60 in the prior years fourth quarter.
  • GAAP loss per share was $(0.46) as compared to the prior years fourth quarter earnings per share of $1.09.
  • Revenue increased 25% to $2.052 billion, as compared to $1.636 billion in the prior years fourth quarter. The increase over the prior year was principally driven by the addition of approximately $479 million of revenue related to the acquired Warnaco businesses, net of the reduction in licensing revenue attributable to Warnaco. Also contributing to the increase was revenue growth of $18 million, or 2%, in the Companys Tommy Hilfiger and pre-acquisition Calvin Klein businesses. Partially offsetting these increases was a revenue decline of $81 million, or 19%, in the Companys pre-acquisition Heritage Brands businesses, of which $75 million was lost revenue resulting from the sale of the G.H. Bass & Co. business on the first day of the quarter.

CEO Comments:

Emanuel Chirico, Chairman and Chief Executive Officer, noted, 2013 was a transformational year for PVH, beginning with the February 2013 Warnaco acquisition, followed by the sale of our Bass retail business in November 2013. We believe that these strategic actions will strengthen our company over the long-term and position us to deliver improved financial returns, as we focus our efforts on our higher margin businesses.

Commenting on the fourth quarter and full year results, Mr. Chirico stated, We are pleased with our 2013 fourth quarter results, which exceeded our previous guidance for earnings per share, despite the difficult retail environment. Our pre-acquisition Calvin Klein and Tommy Hilfiger businesses performed well and continued to demonstrate their significant global growth prospects. We have also been pleased with the performance of our newly acquired Calvin Klein businesses in Asia and Brazil, as well as our global underwear business. While our newly acquired Calvin Klein jeans business, particularly in North America and Europe, struggled in 2013, we believe that our focused investments will drive future profitability.

Mr. Chirico further commented, The Warnaco integration continues to progress with strategic investments well underway and we have made significant progress towards building a solid foundation for our future across the global Calvin Klein jeans and underwear businesses. We began investing in areas such as filling key open positions, enhancing the existing operating infrastructure, restructuring our customer distribution in various regions, upgrading the quality and design of the Calvin Klein jeans product, and elevating the Calvin Klein presentation at retail. We believe that these investments, which will continue through 2014, will allow us to unlock the full global potential of the Calvin Klein businesses over the long-term.

Mr. Chirico concluded, While the global retail landscape continues to be volatile, we believe that through the power of our designer lifestyle brands led by Calvin Klein and Tommy Hilfige r, we can successfully navigate this uncertain market environment, improve the performance of the acquired Calvin Klein businesses and achieve our 2014 guidance. 2014 will represent a year of two stories Fall 2014 will reflect the first season of product from our newly established design and sourcing teams and presented in an enhanced retail presentation, while the first half will be pressured by our ongoing planned strategic investments and the continuing difficult macroeconomic environment. We remain firm in our belief that the investments in our newly acquired businesses, the sound execution of our business strategies and the expansion of our brands globally will position us to deliver long-term growth and stockholder value.

Fourth Quarter Business Review:

Due to the 53rd week in 2012, the Companys fourth quarter of 2012 included fourteen weeks of operations, as compared to thirteen weeks in 2013. Fourth quarter 2013 comparable store sales are more appropriately compared with the thirteen week period ended February 3, 2013. All comparable store sales discussed in this release are presented on this shifted basis.

Calvin Klein

Revenue in the Calvin Klein business increased $371 million to $688 million from $317 million in the prior years fourth quarter. $364 million of the increase was attributable to the acquired businesses, net of the reduction in licensing revenue attributable to Warnaco. Total revenue for the pre-acquisition wholesale and retail businesses was relatively flat as compared to the prior years fourth quarter primarily due to flat retail comparable store sales and one less week of revenue in 2013. With respect to the newly acquired businesses, the North America underwear business performed well and exceeded plan, while the North America jeans business continued its weak performance, as the Company focused on transitioning to elevated product for Fall 2014 and completed clearing excess inventory. Calvin Klein International comparable store sales increased 1%. The Calvin Klein businesses in Brazil and Asia continued to exceed expectations. Within Asia, the China business maintained solid growth and the Korea business again showed improving trends as compared to previous quarters. The Calvin Klein business in Europe remained under pressure primarily due to the Companys initiative to restructure the sales distribution mix in this region and the business concentration in Southern Europe, in particular Italy.

Royalty revenue in the fourth quarter decreased $23 million from the prior year amount, primarily resulting from the loss of Warnaco royalties and the expiration of a long-term contractual agreement related to royalties in the North America womens sportswear business, which together totaled $29 million. Excluding these two items, royalty revenue increased 14%, driven by strength in womens apparel, watches, handbags and accessories.

Earnings before interest and taxes on a non-GAAP basis for the Calvin Klein business was $86 million as compared to $74 million on a GAAP basis in the prior years fourth quarter, due principally to the addition of revenue related to the newly acquired businesses, partially offset by the cost of strategic investments in those businesses.

GAAP earnings before interest and taxes for the Calvin Klein business was $23 million as compared to $74 million in the prior years fourth quarter. The decline was principally driven by the Warnaco integration and restructuring costs incurred during the fourth quarter of 2013, partially offset by the net non-GAAP earnings increase discussed above.

Tommy Hilfiger

Revenue in the Tommy Hilfiger business increased 1% to $902 million as compared to $891 million in the prior years fourth quarter. Flat revenue in the Tommy Hilfiger North America business relative to last year reflected relatively flat retail comparable store sales combined with one less week of revenue in the fourth quarter of 2013. Revenue in the Tommy Hilfiger International business increased 2% as compared to the prior years fourth quarter, driven by a 10% increase in each of the European wholesale and European retail businesses, including 7% retail comparable store sales growth. Also contributing to the European revenue growth was the positive impact of foreign currency translation resulting from a stronger Euro in the fourth quarter of 2013 as compared with the prior year period. These increases were partially offset by the continued underperformance in Japan, combined with the negative impact of foreign currency translation resulting from a weaker Yen as compared with the prior year period.

Earnings before interest and taxes for the Tommy Hilfiger business increased 15% to $118 million (which was in accordance with GAAP) from $102 million (which was on a non-GAAP basis) in the prior years fourth quarter, principally driven by the net revenue increase discussed above, gross margin improvement in Europe and a reduction in operating expenses due, in part, to synergies achieved in Europe as a result of the Warnaco acquisition. GAAP earnings before interest and taxes for the Tommy Hilfiger business increased 22% from $96 million in the prior years fourth quarter for the same reasons as the non-GAAP earnings increase discussed above and the absence in 2013 of $6 million of costs incurred in connection with the Tommy Hilfiger integration and the related restructuring.

Heritage Brands

Total revenue for the Heritage Brands business increased $34 million, or 8%, to $462 million, as compared to $428 million in the prior years fourth quarter. The newly acquired Speedo, Warners and Olga businesses contributed $115 million of this increase, which was partially offset by the loss of $75 million of revenue related to the sale of the Bass business on the first day of the fourth quarter of 2013. Excluding the Bass impact, revenue for the pre-acquisition Heritage Brands businesses decreased 2%, as a 3% increase in the pre-acquisition Heritage Brands wholesale business was more than offset by a 7% decline in comparable store sales and a revenue reduction due to square footage contraction resulting from closing underperforming stores in the Heritage Brands retail business.

Earnings before interest and taxes for the Heritage Brands business was $29 million on a non-GAAP basis, as compared to $27 million (which was in accordance with GAAP) in the prior years fourth quarter. The increase was principally driven by the net increase in revenue discussed above, partially offset by gross margin pressure attributable to higher promotional activity in the fourth quarter of 2013.

On a GAAP basis, earnings before interest and taxes for the Heritage Brands business was $21 million as compared to $27 million in the prior years fourth quarter. This decrease was principally due to Warnaco integration and restructuring costs incurred during the current years fourth quarter, which more than offset the non-GAAP earnings increase discussed above.

Fourth Quarter Consolidated Earnings:

On a non-GAAP basis, earnings before interest and taxes increased 15% to $207 million from $180 million in the prior years fourth quarter.

Earnings before interest and taxes on a GAAP basis was $160 million as compared to $110 million in the prior years fourth quarter. The earnings increase was primarily due to (i) the same reasons as for the net non-GAAP earnings increase in the Companys businesses discussed above; (ii) an $81 million increase due to retirement plan actuarial gains in 2013, as compared to actuarial losses in 2012; and (iii) the absence in 2013 of $6 million of costs related to the integration of Tommy Hilfiger and the related restructuring, partially offset by an increase over the prior year of $62 million of Warnaco integration and restructuring costs.

Net interest expense increased to $45 million (which was in accordance with GAAP) as compared to $28 million on a non-GAAP basis in the prior years fourth quarter, due to an increase in the Companys total indebtedness incurred at the time of the Warnaco acquisition. GAAP net interest expense was $31 million in the prior years fourth quarter. During the fourth quarter of 2013, the Company made debt repayments totaling $297 million on its outstanding term loans, which brought total 2013 debt repayments to $500 million.

Retrospective Adjustment of Warnaco Purchase Price Allocation:

During the fourth quarter of 2013, the Company retrospectively adjusted the fair value of the order backlog recorded in connection with the Warnaco acquisition. The related order backlog amortization expense for the first and second quarters of 2013 was reduced as a result of this fair value adjustment. The Companys non-GAAP results were not impacted by this adjustment, as costs incurred in connection with the acquisition, integration and related restructuring of Warnaco, including short-lived valuation adjustments and amortization, were excluded on a non-GAAP basis during 2013.

Refer to Appendix A later in this release for a further discussion of this adjustment and the restated prior period GAAP quarterly financial results.

Full Year 2013 Consolidated Results:

  • On a non-GAAP basis, earnings per share was $7.03 as compared to $6.58 in 2012.
  • GAAP earnings per share was $1.74 as compared to $5.87 in 2012.
  • Revenue on a non-GAAP basis increased $2.173 billion, or 36%, to $8.216 billion as compared to the prior years amount of $6.043 billion (which was in accordance with GAAP). Driving the increase was:
    • A $1.646 billion increase in the Calvin Klein business as compared to 2012, driven by (i) the addition of $1.525 billion attributable to the acquired Warnaco businesses, net of the reduction in licensing revenue attributable to Warnaco; (ii) an 8% increase in the pre-acquisition North America wholesale business; and (iii) an increase in the North America retail business driven by 3% comparable store sales growth and square footage expansion. Royalty revenue decreased 31% as compared to the prior year, principally due to the loss of Warnaco royalties and the expiration of a long-term contractual agreement related to royalties in the North America womens sportswear business, which together totaled $105 million. Excluding the expiration of this contract and the loss of Warnaco royalties, royalty revenue increased 11%, driven by strength in womens apparel, handbags and accessories, as well as mens and womens outerwear.
    • A 7%, or $216 million, increase in the Tommy Hilfiger business as compared to 2012. Revenue in the Tommy Hilfiger North America business increased 8%, principally driven by 4% retail comparable store sales growth, retail square footage expansion and double-digit growth in the North America wholesale business. Revenue in the Tommy Hilfiger International business increased 6%. Growth in Europe was driven by a 6% European retail comparable store sales increase, retail square footage expansion and a 9% increase in the European wholesale business, and also included a positive impact of foreign currency translation due to a stronger Euro compared with the prior year. These increases were partially offset by underperformance in Japan, where the Company continued its efforts to reposition the brand. The business in Japan was also negatively impacted by foreign currency translation due to a weaker Yen in 2013.
    • A 19%, or $311 million, increase in the Heritage Brands business compared to 2012, driven by (i) the addition of $450 million attributable to the newly acquired Speedo, Warners and Olga businesses; and (ii) a $19 million increase in the pre-acquisition ongoing wholesale businesses, partially offset by (a) the loss of $75 million related to the exited Bass business; (b) the loss of $42 million related to the Izod womens and Timberland wholesale sportswear businesses exited in 2012; and (c) a comparable store sales decline of 7% in the retail business due, in large part, to weak performance at Bass during the first three quarters of 2013.
  • GAAP revenue of $8.186 billion was $30 million lower than non-GAAP revenue for the year. The difference is attributable to sales returns accepted from certain Warnaco Asia wholesale customers during the first quarter of 2013 in an initiative to reduce excess inventory levels.
  • On a non-GAAP basis, earnings before interest and taxes increased $215 million over 2012 to $967 million due to:
    • A $147 million increase in the Calvin Klein business, driven primarily by the addition of revenue related to the acquired Warnaco... businesses, partially offset by the cost of strategic initiatives in those businesses in the second half of 2013, combined with strong growth in the Company’s pre-acquisition businesses.
    • A $42 million increase in the Tommy Hilfiger business, principally due to the revenue increase mentioned above.
    • A $40 million increase in the Heritage Brands business, driven by (i) the addition of earnings related to the newly acquired Speedo, Warner’s and Olga businesses; and (ii) growth in the Company’s ongoing pre-acquisition wholesale businesses, partially offset by weakness in the Heritage Brands retail business.
    • A $13 million increase in corporate expenses, due principally to the addition of Warnaco corporate expenses, net of savings and synergies realized from the acquisition.
  • GAAP earnings before interest and taxes decreased $147 million to $513 million as compared to $660 million in the prior year. The earnings decrease was primarily due to (i) an increase over the prior year of $468 million of costs related to the acquisition, integration, restructuring and debt modification and extinguishment charges related to the Warnaco acquisition; and (ii) a $20 million loss recorded in connection with the sale of the Bass business, including related costs. These decreases were partially offset by (i) $24 million of income due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition; (ii) an $81 million increase due to retirement plan actuarial gains in 2013, as compared to actuarial losses in 2012; (iii) the absence in 2013 of $21 million of costs related to the integration of Tommy Hilfiger and the related restructuring; and (iv) the net non-GAAP earnings increase discussed above. Of the $510 million of acquisition, integration, restructuring and debt modification and extinguishment charges related to the Warnaco acquisition incurred during 2013, approximately $215 million were non-cash, most of which relate to short-lived valuation adjustments and amortization.
  • On a non-GAAP basis, net interest expense increased to $184 million as compared to $114 million in the prior year, due to an increase in the Company’s total indebtedness incurred in connection with the Warnaco acquisition. GAAP net interest expense was $185 million as compared to $117 in the prior year. During 2013, the Company made debt repayments totaling $500 million on its outstanding term loans.
  • On a non-GAAP basis, the effective tax rate was 25.8% as compared to 23.8% in the prior year. The GAAP effective tax rate was 56.4% as compared to 20.1% for the prior year. The increase in the GAAP effective tax rate as compared to the prior year was due principally to recording an increase to the Company’s previously-established liability for an uncertain tax position related to European and U.S. transfer pricing arrangements.

2014 Guidance:

In 2014, the Company expects its results to be impacted by the following: (i) approximately $25 million of incremental planned investments across the Company’s acquired businesses focused on people, infrastructure, point of sale marketing, customer distribution restructuring and e-commerce in the first half of 2014; (ii) approximately $0.15 per share negative impact from foreign currency due, in large part, to changes in the Canadian Dollar and Brazilian Real; and (iii) approximately $0.10 per share negative impact from the exited Bass retail business.

Please see the section entitled “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

Full Year Guidance

Earnings per share is currently projected to be in a range of $7.40 to $7.50 on a non-GAAP basis, as compared to $7.03 in 2013, or an increase of 5% to 7%.

Revenue in 2014 is currently projected to increase 3% to approximately $8.5 billion, inclusive of a negative impact of $176 million, or 2%, attributable to the exit from the Bass business. It is currently projected that revenue for the Calvin Klein business in 2014 will increase approximately 5%. Revenue for the Tommy Hilfiger business in 2014 is currently expected to increase approximately 7%. Revenue for the ongoing Heritage Brands business in 2014 is currently projected to increase approximately 4%. Including the negative impact related to the sale of the Bass business, revenue for the Heritage Brands business is currently projected to decrease approximately 5%.

Net interest expense is expected to be approximately $145 million in 2014, as anticipated debt payments of approximately $400 million in 2014, combined with the effect of debt payments made during 2013 and the recent refinancing of the Company’s term loans and redemption of its 7 3/8% senior notes in the first quarter of 2014, are expected to result in a decrease to net interest expense as compared to 2013. The Company currently estimates that the 2014 effective tax rate will be between 23.5% and 24.5%.

The Company’s non-GAAP 2014 earnings per share estimate excludes approximately $100 million of pre-tax costs associated with the Warnaco integration and related restructuring and approximately $90 million of pre-tax costs associated with the refinancing of the Company’s term loans and the redemption of its 7 3/8% senior notes due 2020. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax items.)

First Quarter Guidance

In light of the difficult macroeconomic environment, the Company is being cautious in its first quarter outlook. On a non-GAAP basis, earnings per share for the first quarter is projected to be in a range of $1.45 to $1.50, as compared to $1.91 in the prior year’s first quarter.

Revenue in the first quarter of 2014 is currently expected to be approximately $2.0 billion, which represents an increase as compared to 2013 of approximately 2% on a non-GAAP basis and approximately 3% on a GAAP basis. This estimate is inclusive of a negative impact of $47 million, or 2%, attributable to the exited Bass business. It is currently projected that revenue for the Calvin Klein business in the first quarter of 2014 will increase approximately 4% on a non-GAAP basis and approximately 9% on a GAAP basis. Revenue for the Tommy Hilfiger business in the first quarter of 2014 is currently expected to increase approximately 6%. Revenue for the Heritage Brands business in the first quarter of 2014 is currently expected to decrease approximately 8%, which includes a 9% negative impact related to the sale of the Bass business in 2013.

The Company projects that first quarter 2014 net interest expense will be approximately $40 million. The Company currently estimates that the 2014 first quarter tax rate will be between 24.5% and 25.5%. The 2014 first quarter tax rate accounts for a decrease of approximately $0.10 per share versus the 2013 first quarter non-GAAP tax rate, which was favorably impacted by the timing of discrete items.

The Company’s first quarter 2014 earnings per share estimate excludes approximately $40 million of pre-tax costs associated with the integration and related restructuring of Warnaco and approximately $90 million of pre-tax costs associated with the refinancing of the Company’s term loans and the redemption of its 7 3/8% senior notes due 2020. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

Non-GAAP Exclusions:

The discussions in this release that refer to non-GAAP amounts exclude the following:

  • Pre-tax costs of approximately $100 million expected to be incurred in 2014 in connection with the integration of Warnaco and the related restructuring, of which approximately $40 million is expected to be incurred in the first quarter.
  • Pre-tax costs of approximately $90 million associated with the refinancing of the Company’s term loans and the redemption of its 7 3/8% senior notes due 2020, which were incurred in the first quarter of 2014.
  • A revenue reduction of $30 million in the first quarter of 2013, due to sales returns accepted from certain Warnaco Asia wholesale customers to reduce excess inventory levels.
  • Pre-tax costs of $511 million incurred in 2013 in connection with the acquisition, integration and related restructuring of Warnaco, including costs associated with the Company’s debt modification and extinguishment completed at the time of the Warnaco acquisition, and the sales returns mentioned above, of which $224 million was incurred in the first quarter, $128 million was incurred in the second quarter, $61 million was incurred in the third quarter and $99 million was incurred in the fourth quarter. Approximately $215 million of the acquisition, integration and related restructuring charges incurred in 2013 were non-cash charges, the majority of which were short-lived valuation adjustments and amortization.
  • Pre-tax income of $24 million due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition.
  • A pre-tax loss of $20 million, including related costs, incurred in 2013 in connection with the sale of substantially all of the assets of the Bass business, which closed on November 4, 2013, of which $19 million was incurred in the third quarter and $1 million was incurred in the fourth quarter.
  • Pre-tax income of $53 million recorded in the fourth quarter of 2013 related to recognized actuarial gains on retirement plans.
  • A tax expense of $120 million recorded in the fourth quarter of 2013 in connection with an increase to the Company’s previously-established liability for an uncertain tax position related to European and U.S. transfer pricing arrangements.
  • A tax expense of $5 million recorded in the fourth quarter of 2013 associated with various Warnaco integration activities and various adjustments to liabilities for changes in estimates in uncertain tax positions.
  • 2012 pre-tax costs of $21 million incurred principally in connection with the integration of Tommy Hilfiger and the related restructuring, of which $3 million was incurred in the first quarter, $5 million was incurred in the second quarter, $7 million was incurred in the third quarter and $6 million was incurred in the fourth quarter.
  • 2012 pre-tax costs of $46 million incurred in connection with the acquisition of Warnaco, of which $6 million was incurred in the third quarter and $40 million was incurred in the fourth quarter.
  • A pre-tax expense of $28 million recorded in the fourth quarter of 2012 related to recognized actuarial losses on retirement plans.
  • A $14 million tax benefit in 2012 related to the recognition of previously unrecognized net operating loss assets and tax credits, of which $5 million was recorded in the third quarter and $9 million was recorded in the fourth quarter.
  • Estimated tax effects associated with the above pre-tax items, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it has identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were identified as either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

Please see Tables 1 through 8 and the section entitled “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.

The Company webcasts its conference calls to review its earnings releases. The Company’s conference call to review its year end earnings release is scheduled for Wednesday, March 26, 2014 at 9:00 a.m. EDT. Please log on either to the Company’s web site at www.pvh.com and go to the Press Releases page under the Investors tab or to www.companyboardroom.com to listen to the live webcast of the conference call. The webcast will be available for replay for one year after it is held, commencing approximately two hours after the live broadcast ends. Please log on to www.pvh.com or www.companyboardroom.com as described above to listen to the replay. In addition, an audio replay of the conference call is available for 48 hours starting approximately two hours after it is held. The replay of the conference call can be accessed by calling (domestic) 888-203-1112 and (international) 719-457-0820 and using passcode #5792385. The conference call and webcast consist of copyrighted material. They may not be re-recorded, reproduced, re-transmitted, rebroadcast or otherwise used without the Company’s express written permission. Your participation represents your consent to these terms and conditions, which are governed by New York law.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Forward-looking statements in this press release and made during the conference call/webcast, including, without limitation, statements relating to the Company’s future revenue and earnings, plans, strategies, objectives, expectations and intentions are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy, and some of which might not be anticipated, including, without limitation, the following: (i) the Company’s plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company; (ii) the Company may be considered to be highly leveraged, and will have to use a significant portion of its cash flows to service its indebtedness, as a result of which the Company might not have sufficient funds to operate its businesses in the manner it intends or has operated in the past; (iii) the levels of sales of the Company’s apparel, footwear and related products, both to its wholesale customers and in its retail stores, the levels of sales of the Company’s licensees at wholesale and retail, and the extent of discounts and promotional pricing in which the Company and its licensees and other business partners are required to engage, all of which can be affected by weather conditions, changes in the economy, fuel prices, reductions in travel, fashion trends, consolidations, repositionings and bankruptcies in the retail industries, repositionings of brands by the Company’s licensors and other factors; (iv) the Company’s plans and results of operations will be affected by the Company’s ability to manage its growth and inventory, including the Company’s ability to realize benefits from its acquisition of The Warnaco Group, Inc. (“Warnaco”); (v) the Company’s operations and results could be affected by quota restrictions and the imposition of safeguard controls (which, among other things, could limit the Company’s ability to produce products in cost-effective countries that have the labor and technical expertise needed), the availability and cost of raw materials, the Company’s ability to adjust timely to changes in trade regulations and the migration and development of manufacturers (which can affect where the Company’s products can best be produced), changes in available factory and shipping capacity, wage and shipping cost escalation, and civil conflict, war or terrorist acts, the threat of any of the foregoing, or political and labor instability in any of the countries where the Company’s or its licensees’ or other business partners’ products are sold, produced or are planned to be sold or produced; (vi) disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas, as well as reduced consumer traffic and purchasing, as consumers become ill or limit or cease shopping in order to avoid exposure; (vii) acquisitions and issues arising with acquisitions and proposed transactions, including, without limitation, the ability to integrate an acquired entity, such as Warnaco, into the Company with no substantial adverse effect on the acquired entity’s or the Company’s existing operations, employee relationships, vendor relationships, customer relationships or financial performance; (viii) the failure of the Company’s licensees to market successfully licensed products or to preserve the value of the Company’s brands, or their misuse of the Company’s brands; and (ix) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission (“SEC”).

This press release includes, and the conference call/webcast will include, certain non-GAAP financial measures, as defined under SEC rules. A reconciliation of these measures is included in the financial information later in this release, as well as in the Company’s Current Report on Form 8-K furnished to the SEC in connection with this earnings release, which is available on the Company’s website at www.pvh.com and on the SEC’s website at www.sec.gov.

The Company does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings, whether as a result of the receipt of new information, future events or otherwise.

PVH CORP.

Consolidated GAAP Income Statements

(In thousands, except per share data)

           
  Quarter Ended     Year Ended
2/2/14 2/3/13 2/2/14 2/3/13
 
Net sales $ 1,953,491 $ 1,506,910 $ 7,806,140 $ 5,540,821
Royalty revenue 75,606 98,102 290,677 370,019
Advertising and other revenue 23,122   31,188   89,534   132,159
Total revenue $ 2,052,219   $ 1,636,200   $ 8,186,351   $ 6,042,999
 
Gross profit on net sales $ 970,815 $ 751,366 $ 3,839,059 $ 2,747,052
Gross profit on royalty, advertising and other revenue 98,728   129,290   380,211   502,178
Total gross profit 1,069,543 880,656 4,219,270 3,249,230
 
Selling, general and administrative expenses 909,539 771,172 3,673,469 2,594,315
 
Debt modification and extinguishment costs 40,395
 
Equity in income of unconsolidated affiliates, net 0   404   8,056   5,447
 
Earnings before interest and taxes 160,004 109,888 513,462 660,362
 
Interest expense, net 45,400   31,367   184,696   117,250
 
Pre-tax income 114,604 78,521 328,766 543,112
 
Income tax expense (benefit) 152,168   (2,227 ) 185,284   109,272
 
Net (loss) income (37,564 ) 80,748 143,482 433,840
 

Less: Net loss attributable to redeemable non-controlling
interest

(103 )   (55 )  
 
Net (loss) income attributable to PVH Corp. $ (37,461 ) $ 80,748   $ 143,537   $ 433,840
 

Diluted net (loss) income per common share attributable to
PVH Corp.(1)

$ (0.46 )   $ 1.09       $ 1.74     $ 5.87
 
Quarter Ended Year Ended
2/2/14 2/3/13 2/2/14 2/3/13
 
Depreciation and amortization expense $ 70,494 $ 37,812 $ 313,594 $ 140,356

Please see following pages for information related to non-GAAP measures discussed in this release.

 
(1) Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of GAAP diluted net (loss) income per common share to non-GAAP net income per common share.

PVH CORP.
Non-GAAP Measures
(In thousands, except per share data)

The Company believes presenting its results excluding (i) the costs incurred in 2013 and 2012 in connection with its acquisition and integration of The Warnaco Group, Inc. (“Warnaco”) and the related restructuring; (ii) the loss incurred in 2013 in connection with the sale of substantially all of the assets of its G.H. Bass & Co. (“Bass”) business, including related costs; (iii) the income due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition; (iv) the costs incurred in 2013 in connection with the Company’s debt modification and extinguishment; (v) the interest expense incurred in 2013 prior to the Warnaco acquisition closing date and 2012 related to the $700 million of senior notes issued in 2012; (vi) the costs incurred in 2012 in connection with its integration of Tommy Hilfiger and the related restructuring; (vii) the recognized actuarial gains and losses on retirement plans in 2013 and 2012; (viii) the tax effects associated with the foregoing items; (ix) non-recurring discrete tax items related to the Warnaco integration; (x) a non-recurring discrete tax item attributable to an increase to the Company’s previously-established liability for an uncertain tax position related to European and U.S. transfer pricing arrangements and (xi) the tax benefit in 2012 resulting from recognition of previously unrecognized net operating loss assets and tax credits, which are on a non-GAAP basis for each year, provides useful additional information to investors. The Company excludes such amounts that it deems non-recurring or non-operational and believes that this (i) facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. The Company believes that investors often look at ongoing operations of an enterprise as a measure of assessing performance. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The Company’s results excluding certain of the items described above are also the basis for certain incentive compensation calculations.

The following table presents the Company’s non-GAAP measures that are discussed in this release. Please see Tables 1 through 8 for reconciliations of the GAAP amounts to non-GAAP amounts.

           
  Quarter Ended     Year Ended
2/2/14 2/3/13 2/2/14 2/3/13
 
Non-GAAP Measures
Total revenue(1) $ 8,216,351
Total gross profit(2) $ 1,078,282 4,304,855
Selling, general and administrative expenses(3) 871,471 $ 700,756 3,345,984 $ 2,503,069
Earnings before interest and taxes(4) 206,811 180,304 966,927 751,608
Interest expense, net(5) 27,711 183,856 113,594
Income tax expense(6) 42,502 34,059 202,133 151,654
Net income attributable to PVH Corp.(7) 119,012 118,534 580,993 486,360

Diluted net income per common share
attributable to PVH Corp.(8)

$ 1.43 $ 1.60 $ 7.03 $ 6.58
 
Depreciation and amortization expense(9)   $ 67,520           $ 230,211      
(1) Please see Table 2 for reconciliations of GAAP revenue to non-GAAP revenue.
(2) Please see Table 4 for reconciliations of GAAP gross profit to non-GAAP gross profit.
(3) Please see Table 5 for reconciliations of GAAP selling, general and administrative expenses (“SG&A”) to non-GAAP SG&A.
(4) Please see Table 3 for reconciliations of GAAP earnings before interest and taxes to non-GAAP earnings before interest and taxes.
(5) Please see Table 6 for reconciliations of GAAP interest expense to non-GAAP interest expense.
(6) Please see Table 7 for reconciliations of GAAP income tax expense (benefit) to non-GAAP income tax expense and an explanation of the calculation of the tax effects associated with the pre-tax items identified as non-GAAP exclusions.
(7) Please see Table 1 for reconciliations of GAAP net (loss) income to non-GAAP net income.
(8) Please see Note A in the Notes to Consolidated GAAP Income Statements for reconciliations of GAAP diluted net (loss) income per common share to non-GAAP net income per common share.
(9) Please see Table 8 for reconciliations of GAAP depreciation and amortization expense to non-GAAP depreciation and amortization expense.

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts

(In thousands, except per share data)

       

Table 1 - Reconciliation of GAAP net (loss) income to non-GAAP net income

   
  Quarter Ended     Year Ended
2/2/14 2/3/13 2/2/14 2/3/13
 
Net (loss) income attributable to PVH Corp. $ (37,461 ) $ 80,748 $ 143,537 $ 433,840
 

Diluted net (loss) income per common share attributable to
PVH Corp.(1)

$ (0.46 ) $ 1.09 $ 1.74 $ 5.87
 
Items excluded:
 

Gross profit associated with Warnaco acquisition
(including short-lived non-cash inventory valuation adjustments)

8,739 85,585
 

Actuarial (gains) losses on retirement plans (recorded in
SG&A)

(52,539 ) 28,142 (52,539 ) 28,142
 

SG&A expenses associated with acquisition and integration
of Warnaco and related restructuring

86,858 36,167 300,722 42,579
 
Loss recorded on the sale of Bass (recorded in SG&A) 775 20,228
 

SG&A impact of the amendment of an unfavorable contract

(24,309 )
 

SG&A expenses associated with Tommy Hilfiger integration
and related restructuring

6,107 20,525
 

Depreciation and amortization related to Warnaco
acquisition (principally non-cash valuation amortization
recorded in SG&A)

2,974 83,383
 
Debt modification and extinguishment costs 40,395
 

Interest expense incurred prior to the Warnaco acquisition
closing date associated with $700M of senior notes

3,656 840 3,656
 
Tax effect of the items above(2) (14,981 ) (26,835 ) (142,000 ) (28,431 )
 
Discrete tax items related to the Warnaco integration 4,647 5,151
 

Discrete tax item related to an increase to the Company’s
previously-established liability for an uncertain tax position
related to European and U.S. transfer pricing arrangements

120,000 120,000
 

Tax benefit resulting from recognition of previously
unrecognized net operating loss assets and tax credits

  (9,451 )   (13,951 )
 
Non-GAAP net income attributable to PVH Corp. $ 119,012 $ 118,534 $ 580,993 $ 486,360
 

Non-GAAP diluted net income per common share
attributable to PVH Corp.(1)

  $ 1.43     $ 1.60       $ 7.03     $ 6.58  

 

(1)

  Please see Note A in the Notes to the Consolidated GAAP Income Statements for reconciliations of GAAP diluted net (loss) income per common share to non-GAAP net income per common share.
(2) Please see Table 7 for an explanation of the calculation of the tax effects of the above items.

PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts (continued)
(In thousands)

Table 2 - Reconciliation of GAAP revenue to non-GAAP revenue

 
 
Year Ended

2/2/14

 
Revenue $ 8,186,351
 
Items excluded:
 

Revenue reduction due to sales returns for certain Warnaco wholesale customers
in connection with initiative to reduce excess inventory levels

30,000
 
Non-GAAP revenue $ 8,216,351

Table 3 - Reconciliation of GAAP earnings before interest and taxes to non-GAAP earnings before interest and taxes

           
  Quarter Ended     Year Ended
2/2/14 2/3/13 2/2/14 2/3/13
 
Earnings before interest and taxes $ 160,004 $ 109,888 $ 513,462 $ 660,362
 
Items excluded:
 

Gross profit associated with Warnaco acquisition
(including short-lived non-cash inventory valuation
adjustments)

8,739 85,585
 

Actuarial (gains) losses on retirement plans (recorded in
SG&A)

(52,539 ) 28,142 (52,539 ) 28,142
 

SG&A expenses associated with acquisition and
integration of Warnaco and related restructuring

86,858 36,167 300,722 42,579
 
Loss recorded on the sale of Bass (recorded in SG&A) 775 20,228
 

SG&A impact of the amendment of an unfavorable
contract

(24,309 )
 

SG&A expenses associated with Tommy Hilfiger
integration and related restructuring

6,107 20,525
 

Depreciation and amortization related to Warnaco
acquisition (principally non-cash valuation amortization
recorded in SG&A)

2,974 83,383
 
Debt modification and extinguishment costs     40,395    
 
Non-GAAP earnings before interest and taxes   $ 206,811     $ 180,304       $ 966,927     $ 751,608

PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts (continued)
(In thousands)

Table 4 - Reconciliation of GAAP gross profit to non-GAAP gross profit

       
  Quarter Ended     Year Ended

2/2/14

2/2/14

 
Gross profit $ 1,069,543 $ 4,219,270
 
Items excluded:
 

Gross profit associated with Warnaco acquisition (including short-
lived non-cash inventory valuation adjustments)

8,739   85,585
 
Non-GAAP gross profit $ 1,078,282     $ 4,304,855

Table 5 - Reconciliation of GAAP SG&A to non-GAAP SG&A

           

Quarter Ended

Year Ended

2/2/14

2/3/13

2/2/14

2/3/13

 
SG&A $ 909,539 $ 771,172 $ 3,673,469 $ 2,594,315
 
Items excluded:
 

Actuarial gains (losses) on retirement plans (recorded in
SG&A)

52,539 (28,142 ) 52,539 (28,142 )
 

SG&A expenses associated with acquisition and
integration of Warnaco and related restructuring

(86,858 ) (36,167 ) (300,722 ) (42,579 )
 
Loss recorded on the sale of Bass (recorded in SG&A) (775 ) (20,228 )
 

SG&A impact of the amendment of an unfavorable
contract

 

24,309
 

SG&A expenses associated with Tommy Hilfiger
integration and related restructuring

(6,107 ) (20,525 )
 

Depreciation and amortization related to Warnaco
acquisition (principally non-cash valuation amortization
recorded in SG&A)

(2,974 )   (83,383 )  
 
Non-GAAP SG&A   $ 871,471     $ 700,756       $ 3,345,984     $ 2,503,069  

PVH CORP.
Reconciliations of GAAP to Non-GAAP Amounts (continued)
(In thousands)

Table 6 - Reconciliation of GAAP net interest expense to non-GAAP net interest expense

         
Quarter Ended Year Ended

2/3/13

2/2/14

2/3/13

 
Interest expense, net $ 31,367 $ 184,696 $ 117,250
 
Items excluded:
 

Interest expense incurred prior to the Warnaco
acquisition closing date associated with $700M of senior
notes

(3,656 ) (840 ) (3,656 )
 
Non-GAAP interest expense, net   $ 27,711       $ 183,856     $ 113,594  

Table 7 - Reconciliation of GAAP income tax expense (benefit) to non-GAAP income tax expense

           
  Quarter Ended     Year Ended

2/2/14

2/3/13

2/2/14

2/3/13

 
Income tax expense (benefit) $ 152,168 $ (2,227 ) $ 185,284 $ 109,272
 
Items excluded:
 

Income tax effects of pre-tax items identified as non-
GAAP exclusions (1)

14,981 26,835 142,000 28,431
 
Discrete tax items related to the Warnaco integration (4,647 ) (5,151 )
 

Discrete tax item related to an increase to the Company’s
previously-established liability for an uncertain tax
position related to European and U.S. transfer pricing
arrangements

(120,000 ) (120,000 )
 

Tax benefit resulting from recognition of previously
unrecognized net operating loss assets and tax credits

  9,451     13,951
 
Non-GAAP income tax expense $ 42,502     $ 34,059       $ 202,133     $ 151,654
 
(1)   The estimated tax effects of the Company’s non-GAAP exclusions are based on the Company’s assessment of taxability and deductibility. In making this assessment, the Company evaluated each pre-tax item that it has identified as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All of the Company’s pre-tax items identified as non-GAAP exclusions were assumed to be either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

PVH CORP.

Reconciliations of GAAP to Non-GAAP Amounts (continued)

(In thousands)

 

Table 8 - Reconciliation of GAAP depreciation and amortization to non-GAAP depreciation and amortization

       
Quarter Ended Year Ended

2/2/14

2/2/14

 
Depreciation and amortization $ 70,494 $ 313,594
 
Items excluded:
 

Depreciation and amortization related to Warnaco acquisition
(principally short-lived non-cash valuation amortization
recorded in SG&A)

(2,974 ) (83,383 )
 
Non-GAAP depreciation and amortization   $ 67,520       $ 230,211  

PVH CORP.

Notes to Consolidated GAAP Income Statements
(In thousands, except per share data)
 

A. The Company computed its diluted net (loss) income per common share as follows:

 
       
Quarter Ended Quarter Ended

2/2/14

2/3/13

GAAP       Non-GAAP GAAP       Non-GAAP
Results Adjustments Results Results Adjustments Results
 

Net (loss) income attributable to PVH
Corp.

$ (37,461 ) $ (156,473 ) (1) $ 119,012 $ 80,748 $ (37,786 ) (2) $ 118,534
 
Weighted average common shares 81,838 81,838 72,040 72,040
Weighted average dilutive securities 1,128 1,128 1,589 1,589

Weighted average impact of assumed
convertible preferred stock conversion

    684   684
Total shares 81,838   82,966   74,313   74,313
 

Diluted net (loss) income per common
share attributable to PVH Corp.

$ (0.46 ) $ 1.43   $ 1.09   $ 1.60
 
 
Year Ended Year Ended

2/2/14

2/3/13

GAAP Non-GAAP GAAP Non-GAAP
Results Adjustments Results Results Adjustments Results
 
Net income attributable to PVH Corp. $ 143,537 $ (437,456 ) (1) $ 580,993 $ 433,840 $ (52,520 ) (2) $ 486,360
 
Weighted average common shares 81,167 81,167 70,392 70,392
Weighted average dilutive securities 1,451 1,451 1,397 1,397

Weighted average impact of assumed
convertible preferred stock conversion

    2,087   2,087
Total shares 82,618   82,618   73,876   73,876
 

Diluted net income per common share
attributable to PVH Corp.

$ 1.74   $ 7.03   $ 5.87   $ 6.58
(1)   Represents the impact on net (loss) income in the quarter and year ended February 2, 2014 from the elimination of (i) the expenses associated with the Company’s acquisition and integration of Warnaco and the related restructuring; (ii) the loss incurred in connection with the sale of substantially all of the assets of the Company’s Bass business, including related costs; (iii) the income due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition; (iv) the costs incurred in connection with the Company’s debt modification and extinguishment; (v) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued in 2012; (vi) the recognized actuarial gain on retirement plans; (vii) the tax effects associated with the foregoing items; (viii) non-recurring discrete tax items related to the Warnaco integration; and (ix) a non-recurring discrete tax item attributable to an increase to the Company’s previously-established liability for an uncertain tax position related to European and U.S. transfer pricing arrangements. Please see Table 1 for a reconciliation of GAAP net (loss) income to non-GAAP net income. Adjustments to weighted average dilutive securities for the quarter ended February 2, 2014 represent the dilutive impacts of securities included in the non-GAAP earnings per share calculations. Such amounts are not included in the GAAP earnings per share calculation for the quarter ended February 2, 2014 because there are GAAP net losses attributable to PVH Corp., and, as such, the inclusion of these securities would have been antidilutive.
 
(2) Represents the impact on net income in the quarter and year ended February 3, 2013 from the elimination of (i) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; (ii) the costs incurred in connection with the Company’s acquisition of Warnaco; (iii) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued in 2012; (iv) the recognized actuarial loss on retirement plans; (v) the tax effects associated with the foregoing costs; and (vi) the tax benefit resulting from the recognition of previously unrecognized net operating loss assets and tax credits. Please see Table 1 for a reconciliation of GAAP net income to non-GAAP net income.

PVH CORP.

Consolidated Balance Sheets

(In thousands)

   
2/2/14 2/3/13
ASSETS
Current Assets:
Cash and Cash Equivalents $ 593,159 $ 892,209
Receivables 761,133 441,324
Inventories 1,280,958 878,415
Other Current Assets 363,342   225,058
Total Current Assets 2,998,592 2,437,006
Property, Plant and Equipment 712,078 561,335
Goodwill and Other Intangible Assets 7,558,960 4,539,892
Other Assets 377,983   243,316
$ 11,647,613   $ 7,781,549
 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST
AND STOCKHOLDERS’ EQUITY

Accounts Payable and Accrued Expenses $ 1,460,601 $ 1,063,600
Short-Term Borrowings 6,796 10,847
Current Portion of Long-Term Debt 85,000 88,000
Other Liabilities 1,876,216 1,154,891
Long-Term Debt 3,878,221 2,211,642
Redeemable Non-Controlling Interest 5,600
Stockholders’ Equity 4,335,179   3,252,569
$ 11,647,613   $ 7,781,549
PVH CORP.        
Segment Data
(In thousands)
 

REVENUE BY SEGMENT

Quarter Ended Quarter Ended
2/2/14 2/3/13

Calvin Klein North America

Net sales $ 307,296 $ 206,683
Royalty revenue 27,801 34,788
Advertising and other revenue 10,104   12,540
Total 345,201 254,011
 

Calvin Klein International

Net sales 311,676 10,011
Royalty revenue 22,646 38,974
Advertising and other revenue 8,897   14,373
Total 343,219 63,358
             

Total Calvin Klein

Net sales 618,972 216,694
Royalty revenue 50,447 73,762
Advertising and other revenue 19,001   26,913
Total   688,420         317,369
 

Tommy Hilfiger North America

Net sales 399,437 399,594
Royalty revenue 6,692 6,186
Advertising and other revenue 2,263   1,672
Total 408,392 407,452
 

Tommy Hilfiger International

Net sales 478,804 469,162
Royalty revenue 13,650 13,246
Advertising and other revenue 1,083   1,245
Total 493,537 483,653
             

Total Tommy Hilfiger

Net sales 878,241 868,756
Royalty revenue 20,342 19,432
Advertising and other revenue 3,346   2,917
Total   901,929         891,105
 

Heritage Brands Wholesale

Net sales 364,053 240,966
Royalty revenue 4,337 3,854
Advertising and other revenue 698   1,117
Total 369,088 245,937
 

Heritage Brands Retail

Net sales 92,225 180,494
Royalty revenue 480 1,054
Advertising and other revenue 77   241
Total 92,782 181,789
             

Total Heritage Brands

Net sales 456,278 421,460
Royalty revenue 4,817 4,908
Advertising and other revenue 775   1,358
Total   461,870         427,726
 

Total Revenue

Net sales 1,953,491 1,506,910
Royalty revenue 75,606 98,102
Advertising and other revenue 23,122   31,188
Total $ 2,052,219   $ 1,636,200
PVH CORP.
Segment Data (continued)
(In thousands)
             

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT

 
Quarter Ended Quarter Ended
2/2/14 2/3/13
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments(1) Results GAAP Adjustments(2) Results
 
Calvin Klein North America $ 43,944 $ (8,460 ) $ 52,404 $ 47,701 $ 47,701
 
Calvin Klein International (20,799 )   (54,633 ) 33,834   26,089   26,089  
                               
Total Calvin Klein   23,145       (63,093 )   86,238       73,790           73,790  
 
Tommy Hilfiger North America 54,930 54,930 52,491 52,491
 
Tommy Hilfiger International 62,589   62,589   43,636   $ (5,643 ) 49,279  
                               
Total Tommy Hilfiger   117,519           117,519       96,127       (5,643 )   101,770  
 
Heritage Brands Wholesale 23,336 (6,852 ) 30,188 24,127 24,127
 
Heritage Brands Retail (2,076 )   (775 ) (1,301 ) 2,431   2,431  
                               
Total Heritage Brands   21,260       (7,627 )   28,887       26,558           26,558  
 
Corporate (1,920 )   23,913   (25,833 ) (86,587 )   (64,773 ) (21,814 )
 
Total earnings before interest and taxes $ 160,004   $ (46,807 ) $ 206,811   $ 109,888   $ (70,416 ) $

180,304

 
(1)   Adjustments for the quarter ended February 2, 2014 represent the elimination of (i) the costs incurred in connection with the Company’s integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the sale of substantially all of the assets of its Bass business; and (iii) the recognized actuarial gain on retirement plans.
(2) Adjustments for the quarter ended February 3, 2013 represent the elimination of (i) the costs incurred in connection with the Company’s acquisition of Warnaco; (ii) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; and (iii) the recognized actuarial loss on retirement plans.
PVH CORP.            
Segment Data (continued)
(In thousands)
REVENUE BY SEGMENT
Year Ended Year Ended
2/2/14 2/3/13
Results
Under Non-GAAP

Calvin Klein North America

GAAP Adjustments(1) Results
Net sales $ 1,316,765 $ 1,316,765 $ 714,862
Royalty revenue 113,924 113,924 136,957
Advertising and other revenue 41,888   41,888   55,300
Total 1,472,577 1,472,577 907,119
 

Calvin Klein International

Net sales 1,186,932 $ (30,000 ) 1,216,932 45,071
Royalty revenue 76,756 76,756 140,412
Advertising and other revenue 30,295     30,295   57,764
Total 1,293,983 (30,000 ) 1,323,983 243,247
                     

Total Calvin Klein

Net sales 2,503,697 (30,000 ) 2,533,697 759,933
Royalty revenue 190,680 190,680 277,369
Advertising and other revenue 72,183     72,183   113,064
Total   2,766,560     (30,000 )   2,796,560         1,150,366
 

Tommy Hilfiger North America

Net sales 1,505,589 1,505,589 1,399,323
Royalty revenue 27,599 27,599 22,364
Advertising and other revenue 9,015   9,015   8,073
Total 1,542,203 1,542,203 1,429,760
 

Tommy Hilfiger International

Net sales 1,834,793 1,834,793 1,732,228
Royalty revenue 51,718 51,718 50,038
Advertising and other revenue 4,548   4,548   4,964
Total 1,891,059 1,891,059 1,787,230
                     

Total Tommy Hilfiger

Net sales 3,340,382 3,340,382 3,131,551
Royalty revenue 79,317 79,317 72,402
Advertising and other revenue 13,563   13,563   13,037
Total   3,433,262         3,433,262         3,216,990
 

Heritage Brands Wholesale

Net sales 1,420,287 1,420,287 991,781
Royalty revenue 16,433 16,433 15,477
Advertising and other revenue 2,780   2,780   4,872
Total 1,439,500 1,439,500 1,012,130
 

Heritage Brands Retail

Net sales 541,774 541,774 657,556
Royalty revenue 4,247 4,247 4,771
Advertising and other revenue 1,008   1,008   1,186
Total 547,029 547,029 663,513
                     

Total Heritage Brands

Net sales 1,962,061 1,962,061 1,649,337
Royalty revenue 20,680 20,680 20,248
Advertising and other revenue 3,788   3,788   6,058
Total   1,986,529         1,986,529         1,675,643
 

Total Revenue

Net sales 7,806,140 (30,000 ) 7,836,140 5,540,821
Royalty revenue 290,677 290,677 370,019
Advertising and other revenue 89,534     89,534   132,159
Total $ 8,186,351   $ (30,000 ) $ 8,216,351   $ 6,042,999
(1)   Adjustments for the year ended February 2, 2014 represent the elimination of sales returns for certain Warnaco wholesale customers in Asia in connection with an initiative to reduce excess inventory levels.
PVH CORP.
Segment Data (continued)
(In thousands)
             

EARNINGS BEFORE INTEREST AND TAXES BY SEGMENT

 
Year Ended Year Ended
2/2/14 2/3/13
Results Results
Under Non-GAAP Under Non-GAAP
GAAP Adjustments(1) Results GAAP Adjustments(2) Results
 
Calvin Klein North America $ 167,041 $ (87,703 ) $ 254,744 $ 182,124 $ 182,124
 
Calvin Klein International (60,716 ) (237,500 ) 176,784   102,544   102,544  
                             
Total Calvin Klein   106,325     (325,203 )   431,528       284,668           284,668  
 
Tommy Hilfiger North America 242,473 12,000 230,473 200,121 $ (379 ) 200,500
 
Tommy Hilfiger International 260,570   12,309   248,261   220,812     (15,441 ) 236,253  
                             
Total Tommy Hilfiger   503,043     24,309     478,734       420,933       (15,820 )   436,753  
 
Heritage Brands Wholesale 114,400 (43,874 ) 158,274 101,087 101,087
 
Heritage Brands Retail (24,397 ) (20,228 ) (4,169 ) 13,498   13,498  
                             
Total Heritage Brands   90,003     (64,102 )   154,105       114,585           114,585  
 
Corporate (185,909 ) (88,469 ) (97,440 ) (159,824 )   (75,426 ) (84,398 )
 
Total earnings before interest and taxes $ 513,462   $ (453,465 ) $ 966,927   $ 660,362   $ (91,246 ) $ 751,608  
(1)   Adjustments for the year ended February 2, 2014 represent the elimination of (i) the costs incurred in connection with the Company’s acquisition and integration of Warnaco and the related restructuring; (ii) the loss incurred in connection with the sale of substantially all of the assets of the Company’s Bass business, including related costs; (iii) the income due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition; (iv) the costs incurred in connection with the Company’s debt modification and extinguishment; and (v) the recognized actuarial gain on retirement plans.
 
(2) Adjustments for the year ended February 3, 2013 represent the elimination of (i) the costs incurred in connection with the Company’s acquisition of Warnaco; (ii) the costs incurred in connection with the Company’s integration of Tommy Hilfiger and the related restructuring; and (iii) the recognized actuarial loss on retirement plans.

PVH CORP.
Appendix A
(In thousands, except per share data)

During the process of finalizing the Warnaco purchase price allocation in the fourth quarter of 2013, the Company received additional information about facts and circumstances that existed as of the Warnaco acquisition date. As a result of the receipt of new information, which was included in the final valuation report received from a third-party valuation firm, and considering the results of that report, the Company estimated the fair value of the order backlog acquired as part of the Warnaco acquisition to be $24,100 lower than the estimated provisional amount. As a result of this adjustment to fair value, the carrying amount of the order backlog (which was being amortized principally over six months) was retrospectively decreased as of February 13, 2013, with a corresponding increase to goodwill and other intangible assets (net of related deferred taxes), and the related order backlog amortization expense for the first and second quarters of 2013 was reduced. The Company recorded these measurement period adjustments in the fourth quarter of 2013 and applied the adjustments retrospectively in accordance with FASB guidance for business combinations. The measurement period adjustments were included in the results of the Calvin Klein International segment. The Company’s non-GAAP results were not impacted by this adjustment, as costs incurred in connection with the acquisition, integration and related restructuring of Warnaco, including short-lived valuation adjustments and amortization, were excluded on a non-GAAP basis during 2013. On a GAAP basis, the Company’s results were adjusted as follows:

  Quarter Ended   Quarter Ended
5/5/13   8/4/13
 

As Originally
Reported

 

Measurement
Period
Adjustments

 

As
Retrospectively
Adjusted

As Originally
Reported

 

Measurement
Period
Adjustments

 

As
Retrospectively
Adjusted

 

Selling, general and
administrative expenses(1)

$ 907,008 $ (11,630 ) $ 895,378 $ 953,468 $ (12,286 ) $ 941,182

Earnings before interest
and taxes

6,785 11,630 18,415 73,433 12,286 85,719
Income tax expense (19,151 ) 1,894 (17,257 ) 41,963 1,689 43,652
Net income (20,052 ) 9,736 (10,316 ) (15,996 ) 10,597 (5,399 )

Diluted net income per
common share

(0.25 )   0.12     (0.13 ) (0.20 )   0.13     (0.07 )
(1) The difference between the decrease in selling, general and administrative expenses and the decrease in the fair value of the intangible asset relates to changes in exchange rates subsequent to the acquisition date.

PVH CORP.

Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts

The Company is presenting its (1) 2014 estimated results excluding (a) costs expected to be incurred in connection with its integration of Warnaco and the related restructuring; (b) costs incurred in connection with the refinancing of the Company’s term loans and the redemption of its 7 3/8% senior notes due 2020; and (c) the estimated tax effects associated with these costs, and (2) 2013 previous guidance excluding (a) costs expected to be incurred in connection with its acquisition and integration of Warnaco and the related restructuring; (b) the loss incurred in connection with the sale of substantially all of the assets of its Bass business, including related costs; (c) the income due to the amendment of an unfavorable contract, which resulted in the reduction of a liability recorded at the time of the Tommy Hilfiger acquisition; (d) the costs incurred in connection with the Company’s debt modification and extinguishment in the first quarter of 2013; (e) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued in 2012; (f) the estimated tax effects associated with these items; and (g) non-recurring discrete tax items related to the Warnaco integration. The 2014 estimated results and 2013 previous guidance are on a non-GAAP basis. The Company believes presenting these results on a non-GAAP basis provides useful additional information to investors. The Company excludes such amounts that it deems non-recurring or non-operational and believes that this (i) facilitates comparing current results against past and future results by eliminating amounts that it believes are not comparable between periods, thereby permitting management to evaluate performance and investors to make decisions based on the ongoing operations of the Company and (ii) assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance. The Company has provided the reconciliations set forth below to present its estimates on a GAAP basis and excluding these amounts. The Company uses its results excluding these amounts to evaluate its operating performance and to discuss its business with investment institutions, the Company’s Board of Directors and others. The estimated tax effects associated with the above costs are based on the Company’s assessment of taxability and deductibility. In making this assessment, the Company evaluated each pre-tax item that it has identified as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were assumed to be either primarily taxable or tax deductible, with the tax effect taken at the statutory income tax rate of the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

  2014 Guidance   Previous 2013 Guidance

Net Income Per Common Share Reconciliations

Full Year
2014
(Estimated)

 

First Quarter
2014
(Estimated)

Full Year
2013
(Estimated)

 

Fourth Quarter
2013
(Estimated)

 

GAAP net income per common share attributable to
PVH Corp.

$5.67 - $5.77 $0.28 - $0.33 $2.56 $0.85
 

Estimated per common share impact of items
identified as non-GAAP exclusions

$1.73 $1.17 $4.44 $0.55
 

Net income per common share attributable to PVH
Corp. excluding impact of items identified as non-
GAAP exclusions

$7.40 - $7.50

$1.45 - $1.50 $7.00 $1.40

The GAAP net income per common share amounts presented in the above table are being provided solely to comply with applicable SEC rules and are not, and should not be construed to be, guidance for the Company’s 2014 fiscal year. The Company’s net income per common share, as well as the amounts excluded in providing non-GAAP earnings guidance, would be expected to change as a result of acquisition, restructuring, divestment or similar transactions or activities, the timing and strategy of restructuring and integration initiatives or other one-time events, if any, that the Company engages in or suffers during the period or any market or other changes affecting the Company’s expected actuarial gain or loss on retirement plans. Other than the Company’s acquisition of Warnaco, which closed on February 13, 2013 and the related restructuring, the sale of substantially all of the assets of the Bass business, which closed on November 4, 2013, and the Company’s refinancing of its term loans and the redemption of its 7 3/8% senior notes due 2020, which occurred in March 2014, the Company has no current understanding or agreement regarding any such material transaction or definitive plans regarding any such material activity.

PVH CORP.
Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts (continued)
 

Reconciliation of GAAP Diluted Net Income Per Common Share to Non-GAAP Diluted Net Income Per Common Share

(In millions, except per share data)
 
First Quarter 2013
(Actual)

Results
Under
GAAP

  Adjustments    

Non-GAAP
Results

 
Net (loss) income attributable to PVH Corp. $ (10,316 ) $ 165,952 (1) $ 155,636
Total weighted average shares 79,970   81,656
 
Diluted net (loss) income per common share attributable to PVH Corp. $ (0.13 ) $ 1.91
(1)   Represents the impact on net (loss) income in the quarter ended May 5, 2013 from the elimination of (i) costs incurred in connection with the Company’s acquisition and integration of Warnaco and the related restructuring; (ii) the costs incurred in connection with the Company’s debt modification and extinguishment in the first quarter of 2013; (iii) the interest expense incurred prior to the Warnaco acquisition closing date related to the $700 million of senior notes issued in 2012; and (iv) the tax effects associated with the foregoing costs.

Contact:
PVH Corp.
Dana Perlman
Treasurer and Senior Vice President, Business Development and Investor Relations
212-381-3502
investorrelations@pvh.com

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