Executive Summary / Key Takeaways

• PVH Corp., owner of Calvin Klein and Tommy Hilfiger, is executing its PVH+ plan to drive long-term profitable growth by focusing on brand desirability, operational efficiency, and a data-driven approach, despite a challenging global macro environment.
• First quarter 2025 results showed modest revenue growth (+2%) driven by EMEA and Americas, but profitability was significantly impacted by noncash impairment charges ($479.5M) and gross margin pressure from increased promotions, unfavorable mix, and temporary operational issues at Calvin Klein.
• The company reaffirmed full-year 2025 revenue guidance (flat to up slightly) but lowered operating margin (to ~8.5%) and EPS ($10.75-$11.00) outlooks, citing the impact of U.S. tariffs (estimated $65M unmitigated EBIT headwind), continued promotional pressures, and the temporary Calvin Klein operational challenges.
• Management is focused on accelerating PVH+ initiatives in the second half, including realizing significant SG&A savings from Growth Driver 5 actions and resolving Calvin Klein's operational issues, targeting an exit to 2025 with double-digit operating margins and setting up for a stronger 2026.
• Key risks include the uncertain macroeconomic backdrop, the potential impact of U.S. tariffs and China's Unreliable Entity List designation, and the successful execution of operational improvements and license transitions.

Setting the Scene: An Iconic Portfolio's Strategic Evolution

PVH Corp. stands as a titan in the global apparel industry, boasting a heritage stretching back over 140 years. Today, its identity is largely defined by two globally recognized powerhouse brands: Calvin Klein and Tommy Hilfiger. In recent years, PVH has strategically streamlined its portfolio, divesting non-core assets like its Heritage Brands menswear and retail businesses (2021) and women's intimate apparel business (2023) to sharpen its focus on unlocking the full potential of these two iconic names. This strategic pivot is encapsulated in the PVH+ Plan, a multi-year initiative launched in 2022 aimed at elevating Calvin Klein and Tommy Hilfiger into the world's most desirable lifestyle brands and positioning PVH as a leading brand-building group.

The PVH+ Plan is a comprehensive blueprint touching every facet of the business, from product creation and consumer engagement to marketplace execution and underlying operational engines. A critical element involves reclaiming control over key product categories previously managed by licensees. This multi-year transition, notably with G-III Apparel Group, Ltd. (GIII), began with the internalization of the Calvin Klein women's sportswear and jeans businesses in North America in Q1 2025, with the Tommy Hilfiger Sportswear license set to follow in Spring 2026. This strategic move is intended to provide greater control over product execution, sourcing, distribution, and pricing, aligning these categories more closely with the global brand vision and driving long-term brand-accretive growth. Complementing this, PVH is also entering new licensing agreements for specialized categories, such as the recently announced partnership with Herman Kay-Mystic LLC for North America wholesale outerwear, leveraging partner expertise in specific niches while maintaining brand alignment.

Competitive Dynamics in a Challenging Market

PVH operates within a highly competitive global apparel market, facing off against a diverse array of players ranging from premium lifestyle brands to fast-fashion giants and broadline retailers. Key direct competitors include companies like Ralph Lauren (RL), VF Corporation (VFC), Tapestry (TPR), and Capri Holdings (CPRI), who vie for market share across similar product categories and geographic regions.

Compared to peers like Ralph Lauren, which commands higher average selling prices and gross margins (RL's gross margin near 65% vs. PVH's TTM 59.43%), PVH's strength lies in its broader market accessibility and diversified portfolio, allowing for potentially faster volume growth in various segments. While Ralph Lauren may lead in luxury positioning and certain aspects of product durability, PVH's focus on cost efficiencies, as evidenced by its gross margin improvements in 2024, and its integrated retail-wholesale model aim to provide a competitive edge in operational costs.

Against activewear and lifestyle players like VF Corporation, PVH competes through its active lines. While VFC may possess specialized technical expertise in outdoor performance, PVH's strategy emphasizes a balance of style and function across a wider lifestyle spectrum. PVH's financial health and cash flow generation have shown resilience, contrasting with some of VFC's recent profitability challenges.

In the accessories space, where Tapestry is a strong player with high gross margins (TPR's gross margin near 73%), PVH competes with its own accessories lines. PVH's scale can offer production cost advantages, but TPR often leads in perceived durability and pricing power in the affordable luxury handbag segment.

Indirect competition from fast-fashion retailers like Inditex and H&M, offering significantly lower price points, and e-commerce platforms like Amazon (AMZN), with rapid delivery capabilities, constantly pressures the market. These forces necessitate PVH's focus on brand desirability, product relevance, and efficient omnichannel execution to maintain market share and avoid excessive promotional activity.

PVH's competitive positioning is further influenced by customer and supplier dynamics. In a market characterized by increasingly price-sensitive consumers and shifting retail traffic patterns (particularly lower store traffic in North America and parts of Asia), maintaining brand relevance and driving conversion are paramount. On the supply chain side, dependencies expose the company to potential cost increases and disruptions, a vulnerability highlighted by recent freight cost increases and temporary operational challenges.

The Role of Technology and Operational Efficiency

Underpinning the PVH+ Plan is a strategic push towards becoming a more data- and demand-driven organization, leveraging technology to enhance efficiency, streamline operations, and improve execution. While specific proprietary technological performance metrics were not detailed, the company's initiatives focus on building a robust digital foundation and optimizing its operational infrastructure.

Key technological and operational initiatives include:

• Global Technology Stack: Consolidating historically decentralized and fragmented technology systems into a single platform of global systems. The stated goal is to leverage scale, drive cost out, and achieve significantly better outcomes. This initiative is expected to deliver tens of millions of dollars in annual savings once fully implemented.
• Global Distribution Network Redesign: Reengineering the distribution network, including consolidating warehouses and in-housing e-commerce distribution (e.g., Tommy Hilfiger North America e-commerce distribution). The aim is to increase capacity utilization (e.g., North America warehouse capacity utilization targeted to increase from ~50% to 85-90%) and significantly decrease distribution expenses. The plan to close and sell the Jonesville, NC warehouse is part of this.
• Reengineering Operating Model & Streamlining Support Functions: Centralizing certain processes and improving systems and automation across the organization. This multi-year initiative (Growth Driver 5 Actions), which began in Q2 2024, targets annual cost savings of approximately $200 million to $300 million by 2026, net of strategic investments, with actions largely completed by the end of 2025. Management expects to exit 2025 with approximately 200 basis points of these savings realized.
• Calvin Klein Global Product Creation Centralization: Bringing product creation capabilities to New York. While this initiative faced transitory operational challenges in its initial phase (Spring 2025 season), leading to extended timelines and pressured costs, it is viewed as critical to unlocking the brand's full potential by aligning product execution globally and driving innovation. Sequential improvements are expected for Fall 2025, with the transition fully complete for Spring 2026.

The "so what" for investors is that these technology and operational initiatives are designed to create a more agile, efficient, and cost-effective operating model. By simplifying processes, leveraging data, and optimizing infrastructure, PVH aims to reduce expenses, improve inventory management (leading to better stock freshness and potentially higher margins), enhance speed to market, and ultimately support sustainable, increasingly profitable growth. These efforts are crucial for offsetting external pressures and funding investments in brand-building and growth drivers.

Q1 2025 Performance: Macro Pressures Overshadow Growth

PVH's first quarter 2025 results reflected the interplay between its strategic execution and the challenging external environment. Total revenue increased by a modest 2% to $1.98 billion, slightly exceeding guidance. This growth was primarily driven by EMEA, which saw a 5% increase (4% in constant currency) fueled by both wholesale and DTC, and Americas, which grew 7% (7% in constant currency) led by wholesale strength, including the initial impact of the Calvin Klein women's license takeback and timing shifts. APAC revenue, however, declined by 13% (11% in constant currency), impacted by the timing of Lunar New Year and a difficult consumer environment, particularly in China. Licensing revenue decreased by 2%, directly attributable to the internalization of licensed categories.

Despite the top-line beat, profitability faced significant headwinds. Gross profit decreased by $37 million, resulting in a 280 basis point decline in gross margin to 58.6%. Approximately 50 basis points of this decline was a planned impact from the shift to a wholesale model for the internalized license business (wholesale carries lower gross margins). The remaining 230 basis points were driven by an unfavorable channel mix, increased promotional selling in a tougher market, and higher freight costs and customer discounts related to temporary Calvin Klein product delivery delays stemming from the centralization of product creation.

Selling, general and administrative (SGA) expenses as a percentage of revenue improved by 50 basis points to 51.6%, benefiting from early impacts of the Growth Driver 5 cost efficiency actions and a favorable revenue mix shift towards wholesale. However, SGA dollars increased slightly year-over-year.

The most significant impact on the bottom line came from noncash goodwill and other intangible asset impairment charges totaling $479.5 million. These charges, primarily related to goodwill in the Americas and APAC segments ($426M) and Australia reacquired perpetual license rights ($53.5M), were triggered by macroeconomic and geopolitical factors leading to a significant increase in discount rates used in valuation. These impairments, being non-deductible for tax purposes, dramatically skewed the effective income tax rate to 87.2% for the quarter, resulting in a net loss of $44.8 million, or $0.88 per diluted share, compared to net income of $151.4 million, or $2.59 per diluted share, in the prior year period.

Liquidity remained adequate, with approximately $2 billion in borrowing capacity available as of May 4, 2025. However, cash and cash equivalents decreased significantly in Q1, primarily due to substantial share repurchases ($561M), including initial deliveries under accelerated share repurchase agreements. Cash used in operating activities was relatively flat year-over-year, but inventory levels increased by 19%, reflecting a purposeful investment in core product, early summer receipts, and support for Q2 sales growth, coupled with softer-than-expected demand for basics.

Outlook and Guidance: A Challenging First Half, Targeted Second Half Improvement

Management's outlook for the remainder of 2025 reflects a cautious stance on the external environment while emphasizing confidence in the impact of accelerating PVH+ initiatives.

For the full year 2025, PVH reaffirmed its revenue guidance of flat to up slightly on both a reported and constant currency basis, noting that reported revenue is likely to be at the higher end due to favorable exchange rates. However, the profitability outlook was revised downward. Full-year operating margin is now projected to be approximately 8.5%, a decrease from the prior expectation of flat to up slightly compared to 10% in 2024. Full-year non-GAAP EPS guidance was lowered to a range of $10.75 to $11.00, down from the previous range of $12.40 to $12.75.

The primary drivers for the reduced profitability outlook are:

• Tariff Impact: An estimated net negative impact on full-year gross profit from recently enacted U.S. tariffs, including an unmitigated impact of approximately $65 million to EBIT (or ~$1.50 per share), weighted predominantly in the second half.
• Promotional Environment: An increase in promotional selling compared to the prior year, expected to continue for the remainder of 2025, driven by weakening consumer sentiment and lower retail traffic.
• Calvin Klein Operational Issues: A larger than initially planned impact from the transitory operational challenges related to centralizing Calvin Klein's global product creation, contributing to margin headwinds, particularly in the first half.

Gross margin for the full year is now expected to decrease by approximately 250 basis points, including the roughly 50 basis points from the G3 license transition and approximately 200 basis points from the combined impact of higher discounts, incremental CK operational issues, and the net tariff effect.

Despite these pressures, management expects SG&A expenses as a percentage of revenue to decrease by approximately 200 basis points for the full year, driven by the favorable impact of Growth Driver 5 actions and the non-recurrence of certain prior-year costs.

For the second quarter of 2025, PVH projects revenue to be up low single digits reported (flat to up slightly constant currency), with operating margin approximately 6.5% to 7%, and EPS in the range of $1.85 to $2.00. Q2 gross margin is expected to decline by 300 basis points, with Q1 trends continuing and a roughly 60 basis point tariff impact, as mitigation strategies are not expected to have a substantial impact until the second half.

Crucially, management is targeting to exit 2025 back at double-digit operating margins. This expected improvement in the second half is predicated on the increasing impact of Growth Driver 5 cost savings, the resolution of most of the Calvin Klein operational challenges, and specific business-driving actions. They also highlighted that the Spring 2026 product seasons for both brands are being set up for stronger performance with higher on-time deliveries and improved go-in margins.

Risks and Challenges

The investment thesis for PVH is subject to several key risks:

• Macroeconomic Volatility: Continued weakening of consumer sentiment, elevated inflation and interest rates, and potential recessionary pressures could further depress consumer spending on discretionary items like apparel, impacting revenue and profitability.
• Trade Policy and Geopolitical Risks: The impact of recently announced U.S. tariffs and potential retaliatory measures, as well as the uncertainty surrounding China's designation of PVH on its Unreliable Entity List, pose significant threats to sourcing costs, market access, and overall financial results, particularly given China's contribution to revenue and EBIT.
• Execution Risk: The successful execution of complex strategic initiatives, including the multi-year G-III license takeback, the Growth Driver 5 cost savings program, and the resolution of the Calvin Klein operational challenges, is critical. Failure to realize anticipated benefits or encountering further disruptions could negatively impact financial performance and delay the targeted margin recovery.
• Inventory Management: The increase in inventory levels in Q1 2025, particularly in core essentials, carries the risk of requiring increased promotional activity if demand does not materialize as planned, further pressuring gross margins in an already promotional environment.
• Brand Relevance: Despite strong marketing efforts, maintaining and increasing brand desirability for Calvin Klein and Tommy Hilfiger in a rapidly evolving consumer landscape requires continuous innovation and significant investment. Failure to resonate with target consumers could lead to market share losses.

Conclusion

PVH Corp. is navigating a turbulent external environment marked by macroeconomic headwinds, tariff uncertainty, and geopolitical pressures in key markets like China. The first quarter of 2025 highlighted these challenges, with significant noncash impairment charges and gross margin compression overshadowing modest revenue growth. The revised full-year outlook reflects the expected impact of these external factors and temporary operational issues at Calvin Klein.

However, the core investment thesis remains anchored in the strength of PVH's iconic Calvin Klein and Tommy Hilfiger brands and the disciplined execution of the PVH+ Plan. The strategic focus on brand elevation, operational efficiency through initiatives like Growth Driver 5, and the long-term benefits of internalizing licensed categories are intended to build a more resilient and profitable business. Management's confidence in a stronger second half of 2025, driven by cost savings and resolving operational bottlenecks, and the foundation being laid for 2026, suggest a potential inflection point beyond the current pressures.

For investors, the story is one of a company actively restructuring and investing in its core strengths to counteract external headwinds. The key will be monitoring the pace and success of the PVH+ Plan's execution, particularly the realization of targeted cost savings, the improvement in Calvin Klein's operational performance, and the ability to mitigate tariff impacts and navigate the uncertain consumer and geopolitical landscape. While the path through 2025 appears challenging, the targeted return to double-digit operating margins exiting the year and the foundation being laid for 2026 provide a narrative of potential recovery and long-term value creation, provided execution remains sharp and external pressures do not significantly worsen beyond current assumptions.