PVH Corp. announced that it plans to to incur pre-tax costs of approximately $120 million over the next 12 months in connection with a Calvin Klein restructuring.
The costs primarily consist of severance, inventory markdowns and allowances, asset impairments, and lease and other contract termination expenses, including as a result of the closure of its flagship store on Madison Avenue in New York, New York. Cash outflows related to these pre-tax costs are expected to be approximately $60 million over the next 12 months.
PVH said that it currently expects revenue in the fourth quarter and full year 2018 to be at least $2.40 billion and $9.57 billion, respectively, which is above its plan.
The company also revised its projected fourth quarter and full year 2018 earnings per share outlook. The company is unable to project fourth quarter and full year 2018 earnings per share on a GAAP basis without unreasonable efforts because of timing issues related to the Calvin Klein restructuring.
The company currently expects its earnings per share on a non-GAAP basis for the fourth quarter 2018 to be at least $1.75, which is $0.15 per share above the high end of its guidance range previously announced on November 29, 2018 and includes a $0.05 per share benefit due to lower than expected income tax expense. The company currently expects its full year 2018 earnings per share on a non-GAAP basis to be at least $9.50. The projected fourth quarter and full year 2018 earnings per share on a non-GAAP basis excludes, among other things, the pre-tax costs expected to be incurred in connection with a restructuring in the company’s Calvin Klein business, discussed below, and the resulting tax effects.
Emanuel Chirico, Chairman and Chief Executive Officer, commented, “Our improved 2018 outlook reflects the power of our diversified global business model. Specifically, we are experiencing outperformance across all of our businesses relative to our previous guidance, despite the increasingly volatile macroeconomic and geopolitical environment.”
Earnings Guidance:
The company’s projection of fourth quarter and full year 2018 earnings per share on a non-GAAP basis excludes (i) the pre-tax costs incurred and to be incurred related to the April 2016 acquisition of the 55% interest in the company’s former Tommy Hilfiger joint venture in China that it did not already own (the “TH China acquisition”), consisting of noncash amortization of short-lived assets, (ii) the pre-tax costs to be incurred in connection with the Calvin Klein restructuring and (iii) the pre-tax actuarial gain or loss on the company’s retirement plans. The estimated tax effects of the above pre-tax items are also excluded from the company’s projections of fourth quarter and full year 2018 earnings per share on a non-GAAP basis.
The company is unable to provide a full reconciliation of its updated fourth quarter and full year 2018 earnings per share guidance on a non-GAAP basis to the corresponding measures on a GAAP basis without unreasonable efforts, as there are significant uncertainties with respect to (i) the timing of the costs to be incurred in connection with the Calvin Klein restructuring over the next 12 months and, more critically, during the company’s fourth quarter and full year 2018, which end on February 3, 2019, and (ii) the actuarial gain or loss on the company’s retirement plans, to be recorded in the fourth quarter 2018, due to the recent volatility in the financial markets.
The reconciling information for the fourth quarter and full year 2018 earnings per share guidance on a non-GAAP basis to the corresponding measures on a GAAP basis that is available without unreasonable efforts is presented at the end of this release, consisting of the costs incurred and to be incurred related to the TH China acquisition and the resulting estimated tax effect.
