NEW YORK--(BUSINESS WIRE)--PVH Corp. [NYSE: PVH] reported its 2020 second quarter results.

Non-GAAP Amounts:

Amounts stated to be on a non-GAAP basis exclude the items that are described below under the heading “Non-GAAP Exclusions.” Reconciliations of amounts on a GAAP basis to amounts on a non-GAAP basis are presented later in this release and identify and quantify all excluded items.

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “Our second quarter revenue exceeded our expectations, reflecting better than expected performance in all our markets and channels. We continue to see outperformance in our digital businesses and across our comfort and casual assortments. As we head into the third quarter, trends in China and Europe continue to be very encouraging. However, our North America business continues to experience pressure due to the resurgence of COVID-19 cases and the lack of international tourist traffic coming to the U.S.”

Mr. Chirico continued, “As we continued to navigate the pandemic during the second quarter, we took immediate actions to address changes in our business needs by right-sizing our costs, driving our digital businesses, managing our inventories and raising additional capital to further support our already-solid financial position. Beyond these actions, we are focused on several key priorities to drive an accelerated recovery, which establish a clear strategic direction for us to drive our business to capture the opportunities we see coming out of the crisis. We are confident that these focus areas – improving our products and assortments, strengthening our distribution, especially in our digital channel, and capturing cost efficiencies – will best position us to gain market share globally and win with our consumers.”

Mr. Chirico concluded, “Our incredible people, our iconic global brands, and our strong fundamentals and balance sheet truly define who we are, and I believe will position us to deliver long-term sustainable growth. At PVH, I am incredibly proud of the steps we are taking to evolve our organization for continued improvement. Our purpose has never been more meaningful to us as we seek to deliver value to all of our stakeholders.”

Business Update:

The Company’s business continues to be impacted negatively by the COVID-19 pandemic as follows, with the level of impact varying by region and channel:

• Direct to Consumer:
  • The Company’s total direct to consumer revenue declined 24% in the second quarter compared to the prior year period, which includes an 87% increase in digital commerce. The strong digital growth was achieved across all regions and brands, even after stores began to re-open. Company-operated stores were closed temporarily during the first month of the second quarter. While almost all of the Company’s stores have reopened, they have been operating on reduced hours and at reduced occupancy levels, which has continued to impact sales volume into the third quarter.
  • In the third quarter to date period, direct to consumer trends have improved compared to the second quarter, with sales running down 15% compared to the prior year period, including continued strong growth in digital commerce. While the continuing pandemic has resulted in minimal store re-closures globally thus far in the third quarter, the Company continues to monitor the situation.

• Global Wholesale Partners: The majority of the Company’s wholesale customers’ stores globally were closed temporarily during the first month of the second quarter, resulting in a sharp reduction in shipments to these customers and an overall decline of 40% in the Company’s wholesale revenue. However, the digital commerce channels exhibited strength across the Company’s traditional and pure play wholesale customers. This favorable trend has continued into the third quarter to date and all wholesale accounts are buying inventory to accommodate their strong digital trends. Many traditional wholesale partners are planning their store-based businesses conservatively for the balance of this year, which will result in a reduction in shipments to these customers. The Company expects the revenue decline in its North America wholesale business will be significantly more pronounced than in Europe and Asia due, in part, to recent bankruptcies.

Refer to the section entitled “Second Quarter Consolidated Results” later in this release for quantification of the second quarter 2020 financial results.

Operating and Liquidity Update:

The Company continues to take proactive actions in response to the COVID-19 pandemic:

• Health & Safety Measures: The Company’s top priority is the health and safety of its associates, consumers and business partners around the world. Accordingly, the Company has implemented health and safety measures to support high safety standards in its retail stores, offices and distribution centers, including temporary closures, reduced occupancy levels, social-distancing and sanitization measures, as well as changes to fitting room use in its stores.

• Operational Efficiencies: The Company continues to manage its cost structure proactively and take other prudent actions in response to the COVID-19 pandemic. The Company recently announced plans to streamline its North America operations to align its business with the evolving retail landscape, including (i) the exit from its Heritage Brands Retail business by mid-2021 and (ii) reductions in its office workforce by approximately 450 positions, or 12%, across all three brand businesses and corporate functions (the “North America workforce reduction”).

• Inventory Management: The Company continues to manage tightly its inventory, which decreased 12% as of the end of the second quarter compared to the prior year period.

  As of the end of fiscal 2020, the Company is projecting to carry approximately $125 million of basic inventory into Spring 2021, which is a reduction compared to the Company’s prior projection of approximately $250 million.

• Liquidity: The Company further strengthened its financial position during the quarter, including the issuance of $500 million of 4 5/8% senior notes due 2025. The Company ended the quarter with cash on hand of approximately $1.4 billion and approximately $1.3 billion of available borrowings under its revolving credit facilities.

Second Quarter Consolidated Results:

Second quarter revenue decreased 33% to $1.581 billion compared to the prior year period. The revenue decrease was due to:

• A 28% decrease in the Tommy Hilfiger business compared to the prior year period, including a 51% decrease in Tommy Hilfiger North America and a 14% decrease in Tommy Hilfiger International, with China showing positive year over year results.
• A 32% decrease in the Calvin Klein business compared to the prior year period, including a 51% decrease in Calvin Klein North America and a 16% decrease in Calvin Klein International, with China showing positive year over year results.
• A 51% decrease in the Heritage Brands business compared to the prior year period.

Loss per share on a GAAP basis was $(0.72) for the second quarter of 2020 compared to earnings per share of $2.58 in the prior year period. These results include the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release. Earnings per share on a non-GAAP basis for these periods, as discussed below, exclude these amounts.

Earnings per share on a non-GAAP basis was $0.13 for the second quarter of 2020 compared to $2.10 in the prior year period.

Loss before interest and taxes on a GAAP basis for the quarter was $2 million compared to earnings before interest and taxes of $250 million in the prior year period. Included in loss before interest and taxes for the second quarter of 2020 were costs of $51 million consisting of (i) $38 million related to the North America workforce reduction, primarily consisting of severance, and (ii) $12 million in connection with the planned exit from the Heritage Brands Retail business, consisting of $7 million of noncash asset impairments and $5 million of severance and other costs. Included in earnings before interest and taxes for the prior year period was an aggregate net gain of $17 million consisting of (i) a noncash gain of $113 million in connection with the Australia acquisition, (ii) costs of $60 million in connection with the Socks and Hosiery transaction, (iii) costs of $29 million related to the Calvin Klein restructuring, and (iv) costs of $7 million related to the Australia and TH CSAP acquisitions. These items are defined in, and described in greater detail under, the heading “Non-GAAP Exclusions” later in this release. Earnings before interest and taxes on a non-GAAP basis for these periods, as discussed below, exclude these amounts.

Earnings before interest and taxes on a non-GAAP basis for the quarter decreased to $49 million compared to $232 million in the prior year period. The decrease was driven by the impact of the COVID-19 pandemic, including the revenue decline discussed above. Earnings in the second quarter benefited from COVID-related government payroll subsidy programs in international jurisdictions and rent abatements negotiated with certain of the Company’s landlords, as well as salary reductions and the furloughing of employees. Full salaries and most furloughed employees were reinstated at the beginning of the third quarter. The Company also eliminated or reduced other discretionary spending, including marketing, travel, consulting services, and creative and design costs. Partially offsetting these savings were additional expenses associated with the implementation of health and safety measures discussed above. These safety measures are expected to continue and the cost of them will be greater in the second half of the year.

Net interest expense on a GAAP basis increased to $32 million from $27 million in the prior year period. Included in net interest expense for the second quarter of 2020 was a $5 million expense resulting from the remeasurement of the Company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense on a non-GAAP basis increased to $28 million from $27 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period).

The effective tax rate on a GAAP basis for the second quarter of 2020 was (53.0)% as compared to 13.3% in the prior year period. The effective tax rate on a non-GAAP basis for the second quarter of 2020 was 56.7% as compared to 23.5% in the prior year period.

Six Months Consolidated Results:

The Company’s business was significantly impacted by the COVID-19 pandemic during the first six months of 2020, resulting in an unprecedented decline in revenue and earnings, including $962 million of pre-tax noncash impairment charges recognized during the first quarter.

Revenue for the first six months of 2020 decreased 38% to $2.925 billion compared to the prior year period. The revenue decrease was due to:

• A 33% decrease in the Tommy Hilfiger business compared to the prior year period, including a 51% decrease in Tommy Hilfiger North America and a 23% decrease in Tommy Hilfiger International.
• A 39% decrease in the Calvin Klein business compared to the prior year period, including a 52% decrease in Calvin Klein North America and a 28% decrease in Calvin Klein International.
• A 49% decrease in the Heritage Brands business compared to the prior year period.

Revenue for the first six months of 2020 reflected a 70% increase in sales through the Company’s directly operated digital commerce businesses driven by strong growth in all regions and brands, which partially offset the decline in revenue through its other distribution channels.

Loss per share on a GAAP basis was $(16.12) for the first six months of 2020 compared to earnings per share of $3.65 in the prior year period. These results include the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release, including $962 million of pre-tax noncash impairment charges recorded in the first quarter of the current year resulting from the impact of the COVID-19 pandemic on the Company’s business. Loss per share and earnings per share on a non-GAAP basis for these periods, respectively, as discussed below, exclude these amounts.

Loss per share on a non-GAAP basis was $(2.90) for the first six months of 2020 compared to earnings per share of $4.56 in the prior year period.

Loss before interest and taxes on a GAAP basis for the first six months was $(1.220) billion compared to earnings before interest and taxes of $385 million in the prior year period. These results include the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release, including $962 million of pre-tax noncash impairment charges recorded in the first quarter of the current year resulting from the impact of the COVID-19 pandemic on the Company’s business. Loss per share and earnings per share on a non-GAAP basis for these periods, respectively, as discussed below, exclude these amounts.

Loss before interest and taxes on a non-GAAP basis for the first six months was $(198) million compared to earnings before interest and taxes of $499 million in the prior year period. The decrease was driven by the impact of the COVID-19 pandemic, including the revenue decline discussed above.

Net interest expense on a GAAP basis decreased to $53 million from $57 million in the prior year period. Included in net interest expense for the first six months of 2020 was a $1 million expense resulting from the remeasurement of the Company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense on a non-GAAP basis decreased to $52 million from $57 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period).

The effective tax rate on a GAAP basis for the first six months of 2020 was 9.8% as compared to 16.3% in the prior year period. The effective tax rate on a non-GAAP basis for the first six months of 2020 was 17.1% as compared to 22.4% in the prior year period.

Non-GAAP Exclusions:

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

• Pre-tax noncash impairment charges of $962 million recorded in the first quarter of 2020 resulting from the impact of the COVID-19 pandemic on the Company’s business, including $933 million related to goodwill and other intangible assets, $16 million related to store assets, and $12 million related to an equity method investment.
• Pre-tax costs of $7 million incurred in the first quarter of 2020 in connection with a consolidation within the Company’s warehouse and distribution network in North America.
• Pre-tax noncash net loss of $3 million recorded in the first quarter of 2020 related to the April 2020 sale of the Company’s Speedo North America business to Pentland Group PLC, the parent company of the Speedo brand and the resulting deconsolidation of the net assets of the Company’s Speedo North America business.
• Pre-tax expense of $1 million recorded in the first six months of 2020 resulting from the remeasurement of the Company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Company’s acquisition of the approximately 78% interest in Gazal Corporation Limited (“Gazal”) that it did not already own (the “Australia acquisition”), of which $4 million of income was recorded in the first quarter and $5 million of expense was recorded in the second quarter.
• Pre-tax costs of $38 million incurred in the second quarter of 2020 related to the North America workforce reduction, primarily consisting of severance.
• Pre-tax costs of $12 million incurred in the second quarter of 2020 in connection with the planned exit from the Heritage Brands Retail business, consisting of $7 million of noncash asset impairments and $5 million of severance and other costs.
• Pre-tax costs of $99 million incurred in the first six months of 2019 related to the restructuring associated with the strategic changes for the Calvin Klein business announced in January 2019 (the “Calvin Klein restructuring”), consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York, other noncash asset impairments, severance, contract termination and other costs, and inventory markdowns, of which $70 million was incurred in the first quarter and $29 million was incurred in the second quarter.
• Pre-tax costs of $55 million incurred in the first quarter of 2019 in connection with the closure of the Company’s TOMMY HILFIGER flagship and anchor stores in the U.S., primarily consisting of noncash lease asset impairments.
• Pre-tax costs of $6 million incurred in the first quarter of 2019 in connection with the refinancing of the Company’s senior credit facilities.
• Pre-tax costs of $60 million incurred in the second quarter of 2019 in connection with the agreements to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses (the “Socks and Hosiery transaction”) in order to consolidate the socks and hosiery business for all Company brands in North America in a newly formed joint venture and to bring in house the international Calvin Klein socks and hosiery wholesale businesses.
• Pre-tax noncash gain of $113 million recorded in the second quarter of 2019 to write up the Company’s equity investments in Gazal and PVH Brands Australia Pty. Limited, a jointly owned and managed joint venture of the Company and Gazal, (“PVH Australia”) to fair value in connection with the Australia acquisition.
• Pre-tax costs of $7 million incurred in the second quarter of 2019 in connection with the Australia acquisition and the Company’s acquisition of the Tommy Hilfiger retail business in Central and Southeast Asia from the licensee of the business (the “TH CSAP acquisition”), primarily consisting of noncash valuation adjustments.
• 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 had 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 applicable income tax rate in the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.

Please see Tables 1 through 11 later in this release for reconciliations of GAAP to non-GAAP amounts.