PVH Corp (PVH) — Q3 2017 Earnings Call Transcript

Thank you, Cynthia. Good morning, everyone. Joining me on the call is Mike Shaffer, our Chief Financial Officer, Dana Perlman, our Treasurer and Head of Investor Relations, and Ken Duane, CEO of our PVH Heritage business and our North America Wholesale Businesses. I'm quite pleased with our results for the third quarter, which exceeded our expectations. We continue to over deliver against our strategic and financial plans. Overall, we saw third quarter revenues grow 5% and EPS increase 16%. We saw tremendous strength across all of our businesses with our international businesses demonstrating outsized performance. Europe, China, and Japan continue to be our healthiest markets in the third quarter. We saw improvements in our North America business, which performed in line with our plan, despite multiple natural disasters, particularly in Puerto Rico that impacted our retail businesses. Business trends in North America continue to significantly improve as we move through the fourth quarter. Across channels, we continue to see outsized growth from the digital channel, consistent with our trends all year. From a strategy perspective, we continue to invest in driving our brand relevance and our consumer reach through our increased marketing investment. And given our strong results, we have decided to invest an additional $20 million in brand marketing in the fourth quarter. Despite this $0.20 per share incremental expense, we are significantly increasing our earnings guidance for the year. Moving to our third quarter results let me begin with Tommy Hilfiger. The Tommy Hilfiger brand continues to experience significant demand and we are seeing broad-based strength across all businesses. The Tommy brand relevancy and momentum continues, leveraging our key influences from Gigi Hadid, our women's brand ambassador, to the Chainsmokers, our brand ambassadors for all Tommy Hilfiger men's categories, and showing you our local brand ambassador for China. We believe that investing in the Tommy Hilfiger brand via these brand ambassadors will continue to drive performance in our global growth categories. And additionally, by offering limited jean capsules and unique collaborations, we are continuing to propel the brand forward, allowing us to engage with a new and younger consumer. From a business perspective, Tommy revenues increased 10% and earnings were up 35% for the quarter. We continue to be extremely pleased with the response from consumers and are benefiting from the market share gains in all regional markets. International revenues increased 16% with retail comp sales up 7% for the third quarter. This outstanding performance was driven by our Tommy European business, which continues to outperform and we continue to see positive momentum across the business and we see strong sell-through at retail. As I’ve previously mentioned, our Spring/Summer 2018 order-book is up over 10% and we are quite pleased with the broad-based strength across all of our product divisions and across all of our markets within Europe. In addition, we continue to see strong momentum in early full selling and we anticipate the strong selling to continue in Europe throughout fiscal 2018. Moving to Tommy Asia, led by the China's Tommy business, it continues to perform very well as we’ve continued to build on the continued momentum in China, benefiting from integration and investments that we’ve made in the Tommy Hilfiger China business. Our Tommy Hilfiger Japan business also continues to over-deliver against its repositioning and turnaround plan. Moving to North America, I am happy with the inflection we've seen in the business. We started to see it turn in our retail business in the second quarter, and we saw even stronger momentum during the third quarter as revenue increases driven largely by the improvement in our retail business, which posted a 6% comp store increase and solid gross margin improvement. We have also seen continued strength across our wholesale businesses, both men's and women's. Our Macy’s business, in particular, has been outstanding with strong sell-throughs at higher overall margins. Moving to our Calvin Klein business and speaking about the brand. We are pleased with the momentum around the Calvin Klein brand and have just announced several significant marketing initiatives. We recently launched our Calvin Klein jeans and underwear campaign, which introduces an evolution in the #MyCalvins to both action to our family #MyCalvins. This features several personalities, including Solange Knowles and some talent, which will be announced at a later date as we head into spring 2018. I cannot wait to share with you the incredible talent and amazing reach we have planned when we announce our latest talent in mid-January for our spring 2018 campaign. Specifically, these jeans and underwear marketing initiatives are geared to enhance direct-to-consumer focus to drive our business. We really feel that with the amazing talent we have planned that I can’t speak about now and that we will introduce as these initiatives will fuel tremendous growth in 2018. We also recently announced our Calvin Klein X Amazon fashion holiday retail experience, available for customers at pop-up shops in New York City and in Los Angeles, as well as through our online brand store at amazon.com. While these are just two recent examples of our consumer engagement marketing investments, we believe that these, together with our other upcoming and ongoing brand marketing initiatives, will continue to drive the brand momentum, fashion relevancy, and allow us to capture growth opportunities for the business. Moving on to the business. Revenues increased 6% for the third quarter, reflecting strong global trends with a 20% increase coming from our international business. And overall earnings were slightly down in the quarter due to a planned $15 million increase in brand marketing investments. Absent these brand investments, earnings would have been up 8% in the third quarter. We continue to see strong top-line growth out of Europe and China with North America performing in line with plan. International retail comp store sales increased 9% in the quarter. Calvin Klein Europe continues to deliver terrific performance, both top line and bottom line with strong sell-throughs across all channels. As we discussed previously, Calvin continues to see market share gains across the European region, and the momentum continues into the spring 2018 with our order book projected to be up over 25%. The broad-based strength across the business highlights the evolution of the brand and the business into a true lifestyle business in Europe, in line with our strategic plan for the region. We see the strong selling trends continuing into fall, and would expect the strong sales trends to continue throughout 2018. In Asia, Calvin Klein continues to perform well with China outperforming our other markets across all product categories. We continue to see softness in Korea, which has been pressured by the negative geopolitical news out of North Korea. But overall, Asia business continues to post strong sales and earnings growth. Calvin Klein North America saw healthy growth across all of our wholesale businesses in line with our plans. Our CK North America business saw an improvement in comp store sales trend versus the first half of the year with comps down only 1% for the third quarter. Finally, moving to our Heritage businesses. Revenues for the quarter were down 7%, in line with our plans, due to some sales moving from the third quarter into the second quarter as compared to the prior year. And therefore, earnings were down as a result of that planned sales shift. As a reminder, year-to-date for the nine-month period, our Heritage Brands’ revenues are flat and earnings are up 9% over the prior year. Retail comps were up 2% in our Heritage Retail business in the third quarter. Given the challenging overall North America market dynamics, we are quite pleased with the financial performance of our Heritage Brands division. Looking to our full year guidance, we have raised our full-year earnings outlook and believe that our brands will continue to drive our fourth quarter performance. In addition, as a result of the momentum in the business, we have increased our fourth quarter marketing spend by an incremental $20 million to capitalize on the opportunities we are seeing across our businesses. Despite this incremental brand investment, we are planning fourth quarter earnings per share to grow 15% to 17% over the prior year. We feel highly confident making this incremental investment in our brand, given the momentum we see in our business. In the fourth quarter, early holiday sales and margin results are running well ahead of our financial plan. Our international businesses continue to see nice momentum with Calvin Klein international comps up high single digits and Tommy Hilfiger international comps up mid single digits. The big improvement we have seen has been in our U.S. business. We have seen a strong start to the North American holiday season with improvements in both traffic and sales trends. Comps for Calvin Klein North America are trending up mid single digits and Tommy Hilfiger North American comps are trending up high single digits quarter-to-date. We also continue to see strong performance in our wholesale businesses in North America and Europe in the fourth quarter. We are well positioned for the fourth quarter and the balance of the year, and believe given our underlying brand momentum and the strength across our businesses that we can continue to over-deliver against our financial plan. And with that, I'll turn it over to Mike to quantify our third quarter results.

Thanks, Manny. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release. Our revenues for the third quarter were up 5% for the prior year, including a positive impact of 2% for foreign currency and exceeded our guidance of up 4%. Tommy Hilfiger revenues were ahead of guidance and up 10% over the prior year, including a positive impact of 3% for foreign currency. The Tommy Hilfiger revenue increase was driven by strong international performance of plus 16% for the prior year, including a positive impact of 5% for foreign currency with international comps up 7%. Revenue growth was also positive in North America where we saw a 2% increase over the prior year, including strong retail comps of 6%. Negatively impacting the Tommy Hilfiger North America revenues was a decrease of approximately $20 million due to the transfer of the North America women's wholesale business to the fourth quarter of last year. Our Calvin Klein revenues were ahead of guidance and up 6% to the prior year, including a positive impact of 2% for foreign currency. Negatively impacting our Calvin Klein revenues versus the prior year was a deconsolidation of our Mexico business, which was worth approximately $20 million. Calvin Klein international revenues increased 20%, including the positive impact of 4% for foreign currency with strong performance in Europe and international comps up 9%. Heritage revenues for the third quarter were down 7%, driven by a shift in the timing of shipments from the third quarter to the second quarter. Our non-GAAP earnings per share of $3.02 represents a growth of 16% over the prior year and included the planned increase of approximately $15 million of marketing compared to the prior year related primarily to Calvin Klein. The $3.02 was $0.10 better than the top end of our previous guidance, and the beat was driven by $0.03 business fee favorable FX of $0.03 and tax expense, which was favorable for $0.04. For the full year, we are currently anticipating that we will be negatively impacted by $0.17 per share due to foreign exchange, an improvement of $0.03 when compared to our previous guidance. For the full year, we are projecting non-GAAP earnings per share to be $7.78 to $7.80 or 14% to 15% over the prior year, which is $0.10 higher at the top end of the range in our previous guidance and this reflects a tax beat of $0.04, a $0.03 increase due to favorable FX, a $0.23 increase due to stronger business, partially offset by an increase in Calvin Klein marketing of approximately $0.20. Overall, we are projecting revenue to grow approximately 7%. 2017 revenues will be negatively impacted by approximately $70 million related to our Mexico deconsolidation and approximately $80 million related to the transfer of the Tommy Hilfiger North America wholesale women's business. 2017 revenues will also be positively impacted by an amount of approximately $50 million related to the 2017 being a 53-week year, offset in part by the negative impact of the timing of Chinese New Year. Overall, operating margins are expected to increase about 10 basis points on an as-reported basis and to increase approximately 30 basis points on a constant currency basis. We project Calvin Klein revenues to grow 9% with operating margins down about 130 to 140 basis points on an as-reported basis, and to decrease about 90 to 100 basis points on a constant currency basis. Our Calvin Klein earnings are negatively impacted in 2017 by about $50 million increase related to advertising and the creative leadership changes. Tommy Hilfiger revenues are planned to increase 8% with operating margins planned to increase about 130 to 140 basis points on an as-reported basis, and they increase about 160 to 170 basis points on a constant currency basis. Our Heritage business is planned to have relatively flat revenues versus the prior year with operating margins planned to increase about 30 to 40 basis points. Our corporate segment expenses are planned to increase over 15%. The increase reflects low single-digit growth in our overheads as well as startup losses associated with new businesses. Interest expense for the year is planned to be about $120 million compared to the prior year amount of $115 million. The increase is primarily the result of 300 million euro bonds issued last year. Our tax rate for the year is planned at about 16.5% to 17%. Fourth quarter non-GAAP earnings per share is planned at $1.42 to $1.44 or 15% to 17% over the prior year, and includes $0.02 of estimated impact for foreign currency. Revenue in the quarter is projected to increase 11%, including a positive impact of 3% for foreign currency. Revenue will be positively impacted by the 53rd week and negatively impacted by the Mexico deconsolidation, the transfer of the Tommy Hilfiger North America wholesale women's business, and the timing of Chinese New Year. Calvin Klein revenues are planned at a 16% increase, including a positive impact of 4% currency. Tommy Hilfiger revenues are at a 12% increase, including a positive impact of 5% for currency and Heritage brand revenues are projected to decrease 1%. Interest expense is projected to be $30 million, and taxes to be between 17% and 20% in the fourth quarter. And with that, we’ll open it up for questions.

Manny, I was just wondering if you could maybe talk a little bit more around North America, especially in November the last six weeks in department stores. What do you think is going on in the market in this channel for your business generally?

I think, in general. I guess there are two big items that are going on that I think are helping business overall. Traffic has improved, and we see business just in general improved. And the other big benefit that I think everyone will see is inventories are under real tight control. So I think it feels like, again, we’ve got a month ahead of us of this holiday selling, but it feels like we’re going into December with a lot of momentum, tighter inventories. I think it will be promotional, but probably not as promotional as last year there’ll be less goods to clear in January if these trends continue. So we are very positive in all that we’re seeing throughout North America across all of our businesses and across the various channels of distribution with our key customers.

And I was just wondering if you could comment a little bit, I mean, on your inventories at the end of the quarter just the content of those inventories, your comfort level with what’s in there and the expectation on moving those inventories forward?

I’m going to turn it over to Mike. I would just say qualitatively that inventory is very strong and we’re really trying to capture as much as growth opportunities above plan that we see ahead of us. And I think that inventory is going to be a valuable asset for us. And I think Mike can give some details.

Bob, our inventories have increased by about 70%. Our sales for the fourth quarter saw an increase of roughly 11%. We have a very clear inventory focus on fashion globally. A significant portion of our investment was directed towards international inventories, which are fundamental and essential. Therefore, there is minimal risk regarding liquidation as it is not outdated. This positions us well for a substantial increase in the fourth quarter.

And I think, as Mike said it well. I think we have a bigger core replenishment business today than we had 12 months ago in our two big brands. And I think the opportunity to capture the momentum in those brands is in front of us with very little markdown in this given the composition of that inventory. So we really see it working to our advantage.

I guess, I’d love to, Manny, hear you talk a little bit more about the Amazon fashion holiday collaboration that you guys just announced a few weeks ago. How has that been trending thus far? Any insights from what you’re learning from consumers? And then has that changed anything with your relationship with your legacy department stores?

Well, I think on balance I think the experience for us has been terrific. We think it’s great for the brand. We’ve seen strong sales performance coming out of two pop-up shops. And more importantly, we've seen strong sales performance in the Calvin business and our Amazon business with them as well online. The interesting fact that we’ve seen is that we think it's really created a lot of momentum around the brand and more excitement around the brand. And we've seen our Calvin Klein underwear business, and that's what this is really focused on. We've seen our Calvin Klein underwear business in all channels of business really accelerate through the month of November, and in particular that the Black Friday week through Cyber Monday, of course department store channel and distribution, we've had one of our strongest weeks on record with Calvin Klein underwear business. So I think it's really lifted all boats and I think it’s created a level of excitement around the brand. And we haven't seen a lot of any kind of pushback from our accounts and we have a strong relationship with all of our key customers and we try to drive everybody's business.

And then I guess my second question for you guys is just on the Tommy Hilfiger business. I think it's the first time in a long time that North America is actually outperforming international. Obviously, they're building up very different bases. But just maybe bigger picture, how sustainable do you see the North American Tommy traction? And how are you thinking about anniversarying the success you've had this year with Gigi? Thank you.

I believe there are two specific questions here. The North America business continues to perform well. Over the past three years, we have felt pressure from currency fluctuations and a decrease in international tourism. As these trends start to improve, we expect our Tommy retail business to benefit significantly due to the strong international presence of the brand. There are opportunities to build on these past performances, especially after two and a half years of challenging conditions leading into the second quarter of 2017. We haven't seen a turning point in this business until that time. I don’t foresee any negative impacts. While I can't discuss the new talent specifically, I can confirm that this is happening at Tommy, and we will launch a significant marketing campaign for spring 2018 featuring new talent. The focus will shift somewhat; Gigi was a major influence as the women's ambassador, but we will also emphasize our strengths in the men's business. You can expect some exciting developments in January and February 2018 as part of the Tommy Hilfiger marketing campaign, which will continue the efforts from the past 18 months and has contributed to the top-line growth we’ve seen in that business.

My question’s centered around the relationship with Amazon, as well. We've heard from some vendors that they're starting to have conversations with Amazon about markdown money. And I wondered if you had any commentary with regards to that? And then in regards to the pop-up shops, I wondered if the incremental $20 million that you're spending in the fourth quarter is being allocated for that initiative.

A couple of things, I think having discussions with retail about markdown money is not very unusual. And I think as Amazon becomes a bigger player, there will be discussions about performance and markdown money as needed. It continues to be a very profitable channel for us. And I think that I don’t see any reason why that wouldn’t continue. The interesting thing about that business it tends to be much more of a core-driven business. And given our strength in that area of the business, particularly our Calvin Klein underwear business and our dress shirt business, I continue to think that our profitability will continue to be pretty high as we look at that business, so we haven't seen anything that drastically change. We're taking some, I think I would say, we're supporting them probably more so from an inventory point of view backing up inventory, particularly in core programs, so we can maximize the business as opposed to really seeing any pressure on margins in any way. So we are not seeing that at all. Your second question on the marketing, yes, part of the investments that we are making on the Calvin Klein brand, the $20 million, a portion of that relates to the promotion PR related to the Amazon pop-up shops and the Amazon relationship, which I think is healthy for all of our Calvin Klein business, not just Amazon.

So as we think about improved inventories in the channel, I guess, what’s the best way to think about near-term gross margin opportunity? And then more so, as we think beyond this year, what's the best way to rank the continued drivers of gross margin beyond?

I think, for us with the outsized growth of the Calvin Klein and Tommy Hilfiger businesses, in general, and with the outsized growth that we’re seeing internationally, both in Europe and Asia, the biggest opportunity for gross margin expansion is the continued growth of those businesses, which will continue to drive gross margin expansion as we go forward.

And just on the expense front, I guess, what’s the best way to think about the right mix of marketing dollars to sales? I guess on that line, how that’s to think about SG&A dollar growth versus sales as we move forward there as well?

Look I think, in general, is we try to invest and continue to invest as a percentage of sales on the business. However, in fairness, I can't say that’s what we’ve always done. When we see momentum in the business and our performance in the business we have, like we’re doing in the fourth of this year, we’ve made a determination to take a portion of that earnings growth and invest it back into the brands above the historic level of profitability. So I think if we continue to outperform, we’ll continue to spend more in the marketing area. We’ll make sure to deliver more on the bottom line as we’re doing that but at the same time in order to fuel the momentum of the brand, not to be greedy and hoard it all to the bottom line, I think the spending that we're doing in the fourth quarter of this year is an extra $20 million I think is really going to set us up for Spring/Summer 2018 to go into that fiscal '18 with a lot of momentum. And gives us the confidence that we can hit our financial goals as we move forward and continue to grow with this double-digit earnings growth where I hope when I look at most of our competitors set, I don’t see them growing at those same levels. So I think the marketing investments are clearly paying off.

Just how do we think about international growth for Tommy and Calvin into next year? The run rate of wholesale order books and the comps for Tommy Calvin are pretty robust. I’m just wondering on how you’re thinking about the sustainability of low double-digit top line growth for Tommy and Calvin into next year in international?

I guess, I would say we’ve got a metric that basically talks about overall delivery mid-single that is 4% to 6% kind of top line growth that’s our formula. And I think clearly we’ve said that in our international businesses will be in the high single-digit range and our domestic business will continue to trend in low single-digit range. And blended will drive that 5% to 6% kind of top line growth. That’s the metrics that we have when we look out. The reality of the situation is and what’s been happening the last two years and what appears to be happening for next year as we start to feel it is our international growth has been more significant in that. And the surprise has not been Calvin Klein we have anticipated that double-digit growth with Calvin given the momentum in the brand, the underdevelopment of the European business and being able to put 25% top line growth in the wholesale side of that business. We think that will continue into 2018 based on our order books and early selling for. The surprise, to be honest, has been the Tommy business that’s a very big, what I would describe as a mature highly profitable business with great market penetration, and to be able to be growing that 10% in the first half of the year is somewhat surprising to us, pleasantly surprising to us. And I guess to be honest what we’re seeing initially and we’re not ready to quantify anything but we’re seeing initially in our early selling is those trends in the high single-digit growth in the Europe wholesale business feel like they should continue based on the momentum in the brand and early selling of fall. So we’re optimistic as we look out into 2018.

Just one follow-up to the previous question. As you move past the foreign exchange pressures you encountered in the last two years, how should we think about operating margin expansion, not just for the next year but for the future, and what is your confidence in the portfolio's ability to achieve double-digit EPS growth over several years?

So I think I always have to consider when it comes to foreign currency, the margin benefit that will come over time, assuming that the euro and it continues to strengthen and foreign currency continues to strengthen and the U.S. dollar stays at this level or weakens further, if that trend were to continue, you would expect to get margin improvement coming from currency. But given our hedging strategy and that we go out 12 months to 18 months that portion of the foreign currency benefit will probably push out into the second half of 2018 but more significantly into '19 from a margin benefit. The benefit we'll get next year is on the translation side of the business, which is really arithmetic, just converting our earnings at the average currency rates for next year, which clearly will be higher than this year. So the big benefit is we've gone through two years of FX, two and a half years of FX pressure on our earnings, and we start to see that turn in the fourth quarter this year into next year it should become a tailwind for us. So that's how I would think about it John.

Manny, maybe I just want to go back to Tommy's international growth in Asia. You talked about, I think, you took China in-house about a year ago with revenues around $140 million with two cities, I think Shanghai, Beijing. Can you talk about the pace of expansion there in terms of new cities that you're looking at and what sales you're expecting, maybe this year and going forward in the region?

Sure. I think, so just to clarify, I would say we were much more exposed than just in two cities but we were directly operating in two cities, meaning a direct to consumer model in Beijing and Shanghai. Over the last 12 months, we've taken in two additional cities where we're operating directly those businesses. So that will drive some top line growth and some overall operating income improvement that you see coming forward. So we look at China as a market for Tommy to be able to grow high single digits low double digits for the next two or three years. And put it in perspective versus Calvin Klein, the Calvin Klein business in China is probably three times the size of the Tommy business. And I think over time there's no reason that Tommy shouldn't approach the same size as the Calvin business. So I think that opportunity in Asia will continue for Tommy as we go forward.

And just a follow-up, maybe your current appetite around taking other Asian geographies in-house for Tommy and some Southeast Asia and Korea, I believe. Just how you're thinking about that in the near term to medium term?

I think that's an opportunity for us. I think probably we would prioritize it. We’d probably focus more on Southeast Asia first, meaning Hong Kong, Macau, Taiwan. It’s more aligned with the China business and the opportunities there; Korea, we've got a great partner in Korea with Hyundai Department Stores as our operator and licensing partner in Korea for Tommy Hilfiger. And I think we would be looking to really continue to grow that business with them as we move forward. So I think clearly, Southeast Asia, Hong Kong, Taiwan and Macau will be the markets we'd be looking to expand into, probably over the next 12 months.

This is Wes in for Omar. Can I follow up on how you're viewing online relationships outside of the U.S.? Zalando team, how are those relationships developing compared to your relationship with Amazon, and what is your outlook moving forward? Thank you.

Look, I think the focus on this call has been Amazon because of the marketing initiatives that’s going on in Calvin, but the growth has been pretty explosive in Europe and Asia with partners you described. And we're seeing; we had a great Cyber Monday; we had a great Singles Day; we continue to see very strong growth coming out of China. Again, it’s a little bit different business model in China when we talk about Tmall, it's really a direct consumer model where you pay a commission versus Amazon for us, which is really a wholesale model. But both business models were really well for us. They are very profitable for us. And in Europe, our biggest online partner continues to be Zalando, and they do an excellent job presenting the brand and really selling fashion and not just core; they are strong partners, strategic for both Calvin and Tommy as we grow the business and we’ll be looking to continue to grow that business throughout Europe. So we see nice growth in all regions. As I said, our biggest growth channel continues to be digital and we define that as our own digital businesses, our department store customer businesses, macys.com and the like, and then obviously the three side resume, the pure play, like Amazon, Tmall, and Zalando, those businesses we’ll put that all together but our fastest growing channel of distribution.

I want to ask about the Calvin Klein women's opportunity in Europe, which I think you’ve previously discussed as an initiative you’ll be pushing in 2018. Could you just provide an update on your efforts there and how you're thinking about that opportunity from a category and country perspective? And then I think it's been cited as one of the main unlocks in getting that business to your $2 billion longer-term target for Europe. So are you seeing anything that makes you feel better or worse about that ultimate potential?

We are set to launch our women's initiative in fall 2018. The market response and acceptance of the brand in these categories have been very strong. Our goal is to enter the market thoughtfully and at the right price point. Currently, our focus is on our wholesale model as we begin to roll it out, but we plan to add retail stores more significantly in 2019 and 2018 to fully represent the lifestyle presentation of the brand. While it is still early, the best indicator of our potential is the strong performance of the Calvin Klein brand overall, especially in the women's jeans and underwear categories. Historically, we have seen strength in our men's underwear and jeans, but the most substantial growth internationally has been in our women's intimates and jeans. This growth reinforces our belief that the brand belongs in the sportswear category, similar to the success observed in North America. Given the strength of our European organization, we are optimistic about our ability to continue this growth, and we believe that women's sportswear, ready-to-wear, including accessories and related categories, will be key drivers for us in 2019 and beyond.

And then just as a quick follow up. I think in North America wholesale, one of the reasons you cited for your outperformance is just the square footage expansion that you’re seeing there. Can you just remind us of the key categories where you are gaining space? And then just in terms of the runway where we stand from an inning perspective with the distribution gains?

So again, look, we’re seeing door expansion, we’re seeing square footage growth with indoors and we’re seeing growth with some key partners that we’re really not in the business in a big way. So I think that it's coming from all different pieces. And I just feel that that’s going to continue as we move forward.

I guess, first off, can you just remind us about your priorities in terms of excess cash? And I think a couple of calls ago you talked about outside M&A being on hold just given the border tax risk. And now that’s off the table, does that change your view? Thanks.

I believe I'll let Mike and Dana discuss some of the short-term cash uses. Regarding acquisitions, we are eager to pursue one that aligns with our strategy. Our focus has been on expanding our licensing operations and gaining more direct control over the Calvin and Tommy brands on a global scale. We're actively seeking the right additional brand to integrate into our operating platforms in Europe, North America, Asia, and Brazil, as we see this as a competitive edge. We understand how to effectively engage with these markets in a synergistic manner. Mergers and acquisitions will occur when the right opportunities arise. With our strong balance sheet and a more favorable overall environment, we feel increasingly optimistic about our business. We're definitely in a position to consider an acquisition if the right one comes along. Now, I'll hand it over to Dana to discuss the primary uses of cash.

Continues to be our focus around debt pay down and share repurchases that we’ve executed to-date this year.

And just actually as a follow up on M&A and just adding a potential brand. Are there things that you’re looking for in a potential target and are there things that you like to avoid? Would you want to do a more stable company or turnaround? Just how do you think about?

Well, clearly, we would not be looking to do a turnaround of the brand to hit finest great brand that’s got operating issues that will be fantastic. So we will be looking for an established brand that has credibility regionally and has the potential to have growth and opportunities globally. And I think be it on the fashion side or maybe moving a little bit more into some other areas. But I think that’s where the focus would be on the business is to find the third brand that we don’t think would be overly cannibalistic to either Calvin or Tommy that we can really fit into the portfolio.

Manny, I just wanted to follow up on the North America situation. Obviously, you guys are taking share. I appreciate that some year-over-year comparison in terms of FX tourism. But is the strength that you're seeing from the improvement in the market somewhat of decline and the stabilization of disruption you've been seeing in brick and mortar retail more broadly or is it really just specific to how you guys are executing?

No, look, I think we're executing at a very high level and I think we’ve been there. We’ll take advantage of it. I'm not ready to say that everything is great in North America retail overall. I think we're going to continue to see downsizing of businesses and store closings. But I think that our retail partners have done a terrific job of managing into the fourth quarter, really good control over their inventories. And I think it will be a profitable fourth quarter for us as we move forward. But it doesn't mean that the ills that are impacting retail in North America and the overall storefront are over. I think those issues still linger and we're going to have to deal and manage through that. And I think we're going to have to deal and manage through some probably bankruptcy situations with some of our smaller accounts as we move forward. But I think that's just the nature of the North America retail business.

I just had two. I know that you guys are not ready obviously to give full year guidance for 2018. But you have alluded to some of the drivers that would affect the business. And Manny, I was just hoping maybe you could give us some more holistic view of some of the puts and takes as you think about 2018 relative to your typical double-digit earnings algorithm view?

I think we continue to be, looking at that algorithm, we don't see any reason why we shouldn’t be able to grow next year in that mid-single-digit range for sales and that we can keep that double-digit earnings growth as we move forward. Any more than that, it’s just premature for us to really get into any more details. But the thing I would do, the one thing I would add is, obviously, the momentum in the business, the strength of the business gives us a great feel of confidence, particularly for the fourth quarter and then obviously as we go into spring next year. So I think we've got wind at our backs.

And just to clarify on something that was in your prepared remarks where you talked about the spring campaign for Calvin and how you felt like these initiatives, in particular, were focused on driving the direct business. Maybe you can just elaborate on what that means?

I believe our energy campaigns are crucial for driving sales and supporting the business. They focus more on brand building rather than just creating a brand halo. We will continue our marketing and collection initiatives, and the additional $20 million we are investing will be central to our efforts in boosting both long-term and short-term top-line growth. We expect to see these campaigns reflected in our retail stores and driving sales with our major retail partners worldwide. The campaigns will be closely aligned with our key partners, who are preparing for the expected growth. This approach differs from some of our earlier initiatives for the Calvin brand, which prioritized halo positioning and enhancing the fashion relevance of Calvin. Our current efforts are focused on driving traffic and sales, and we anticipate significant returns from this in 2018. With that, I'll conclude the call and wish everyone a happy holiday season; Merry Christmas, Happy Hanukkah, and a healthy and happy New Year. We look forward to speaking with you on our first-quarter call in March. Have a great day and talk to you soon. Thank you.