Timberland Licenser Has 4% GAAP Revenue Rise in Q3

For the third quarter of 2008, Phillips-Van Heusen Corporation, 

licenser of Timberland apparel, had total GAAP revenue increase 4% to $727.5 million from $696.4 million in 2007. The GAAP revenue of
the company’s wholesale and retail businesses increased 3%, driven by
dress furnishings, the Calvin Klein men’s sportswear and retail
businesses, and the new Timberland wholesale men’s sportswear business.
Overall, total outlet retail comparable store sales declined 5% in the
third quarter.

Earnings per share excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division was $1.10, which was in line with the company’s previous guidance and exceeded the consensus estimate. GAAP earnings per share was $1.03. The prior year’s third quarter earnings per share was $1.05.

Earnings in the third quarter were negatively impacted by the declines in comparable store sales of the heritage outlet retail business and the related decline in gross margin resulting from increased promotional selling given the difficult economic climate.

Net interest expense in the third quarter increased as a result of the company utilizing $200 million of cash during the fourth quarter of 2007 to repurchase approximately 5.2 million shares of common stock. This, coupled with lower investment rates, reduced interest income. Offsetting this negative impact was a planned decrease in the effective tax rate for the quarter as compared to the prior year due to certain discrete tax items in the third quarter of 2008.

Nine Months Results

For the nine months, total revenue on a GAAP basis increased 4% to $1,914.1 million in 2008 from $1,840.7 million for the same period in 2007, driven by revenue growth of 18% in the company’s Calvin Klein licensing business.

Earnings for the nine months in 2008 were negatively impacted by $12 million of start-up costs in the first half of the year associated with the ompany’s Timberland wholesale men’s sportswear business and Calvin Klein specialty retail stores, an increase of approximately $6 million, or $0.08 per share, compared to $6 million of start-up costs for these businesses in the prior year’s nine months.

Earnings per share excluding the operating results and exit costs
associated with the company’s Geoffrey Beene outlet retail division was
$2.65. GAAP earnings per share was $2.48. For the prior year’s nine month period, earnings per share was $2.65.

Balance Sheet

The company ended the third quarter with $197.6 million in cash, a decrease of $139.1 million from the prior year’s third quarter. This decrease was driven by the completion of the company’s $200 million stock repurchase program during the fourth quarter of 2007.

Inventories decreased 1% from the prior year’s third quarter. Inventories at the end of the third quarter of 2008 include an increase of $23 million, or 7%, related to the new Timberland wholesale men’s sportswear business, the opening of additional Calvin Klein specialty retail stores and the recently-acquired Calvin Klein Collection wholesale business. Excluding this increase, inventories were down 8%, which reflects the Company’s continued focus on aggressively managing inventory levels.

Trade receivables ended the quarter 14% above the prior year due principally to the new Timberland wholesale men’s sportswear business and the recently-acquired Calvin Klein Collection wholesale business. Receivables are current and the Company has not experienced a slowing of collections.

2008 Guidance

The company is revising its previous projection for full year earnings per share, excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division, to a range of $3.00 to $3.10. Excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division, fourth quarter earnings per share is expected to be in a range of 35 cents to 45 cents.

The company is currently projecting full year GAAP earnings per share to be in a range of $2.71 to $2.81, which includes Geoffrey Beene operating results and exit costs of approximately $24 million pre-tax, or $15 million after tax. For the fourth quarter of 2008, GAAP earnings per share is expected to be 23 cents to 33 cents, which includes Geoffrey Beene operating results and exit costs of approximately $10 million pre-tax, or $6 million after tax.

Total GAAP revenue for the full year 2008 is projected to be approximately $2.51 billion to $2.53 billion, an increase of 3% to 4% over 2007. For the fourth quarter, GAAP revenue is expected to be $595 million to $615 million in 2008, an increase of 2% to 5% over the fourth quarter of 2007.

Fourth quarter comparable store sales are planned to be down between 8% and 13% in the company’s total outlet retail business.

Fourth quarter revenue for the Calvin Klein licensing business is expected to be approximately flat with the prior year, as the continued growth of our licensees’ businesses in local currency is expected to be offset by the impact of a stronger U.S. dollar versus the prior year.

The company projects that it will end 2008 with approximately $340 million in cash, with cash flow for 2008 of approximately $70 million. Cash flow for 2008 includes approximately $100 million associated with capital spending and acquisitions.

CEO Comments

Commenting on these results, Chairman and CEO Emanuel Chirico noted, “The recent and rapid deterioration in the overall economic environment in the U.S. and abroad has decreased consumer confidence and spending beyond what we had previously anticipated. This, coupled with the significant strengthening of the U.S. dollar, has caused us to lower our fourth quarter and full year guidance. However, even during this very difficult time, our diversified stable of brands continues to generate strong profits and cash flows.”

“The strength of our balance sheet,” Chirico continued, “which is highlighted by our cash position, significant availability under our revolving credit facility, and no maturities of long-term debt until 2011, provides us with the liquidity that we believe we need to manage our business despite the current volatility in the credit markets. Even in this difficult year, we expect to generate approximately $70 million of cash flow.”

“As we look forward, we believe the current economic environment will continue into 2009. As such, we are reviewing our operating structure, real estate portfolio and capital spending programs to identify opportunities to improve our efficiency, generate expense savings and maximize cash flows. We believe we have a solid financial platform that will allow us to continue to invest in our brands for long-term growth. It is this platform, together with the strength of our brands that should allow us to achieve higher growth rates when the economic environment improves.”

PHILLIPS-VAN HEUSEN CORPORATION
Consolidated Income Statements
(In thousands, except per share data)
   
Quarter Ended
11/2/08
Results     Quarter
Under Non-GAAP Ended

GAAP

Adjustments(1)

Results

11/4/07

 
Net sales $ 636,210 $ (28,597 ) $ 607,613 $ 611,399
Royalty revenue 66,690 66,690 62,851
Advertising and other revenue   24,584     24,584   22,120
Total revenue $ 727,484 $ (28,597 ) $ 698,887 $ 696,370
 
Gross profit on net sales $ 250,026 $ (7,022 ) $ 243,004 $ 243,637
Gross profit on royalty, advertising and other revenue   91,274     91,274   84,971
Total gross profit 341,300 (7,022 ) 334,278 328,608
 
Selling, general and administrative expenses 254,832 (13,099 ) 241,733 226,310
 
Earnings before interest and taxes 86,468 6,077 92,545 102,298
 
Interest expense, net   7,031     7,031   4,105
 
Pre-tax income 79,437 6,077 85,514 98,193
 
Income tax expense   25,738   2,294     28,032   37,314

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Timberland Licenser Has 4% GAAP Revenue Rise in Q3

For the third quarter of 2008, Phillips-Van Heusen Corporation, licenser of Timberland apparel, had total GAAP revenue increase 4% to $727.5 million from $696.4 million in 2007. The GAAP revenue of the company’s wholesale and retail businesses increased 3%, driven by dress furnishings, the Calvin Klein men’s sportswear and retail businesses, and the new Timberland wholesale men’s sportswear business. Overall, total outlet retail comparable store sales declined 5% in the third quarter.

Earnings per share excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division was $1.10, which was in line with the company’s previous guidance and exceeded the consensus estimate. GAAP earnings per share was $1.03. The prior year’s third quarter earnings per share was $1.05.

Earnings in the third quarter were negatively impacted by the declines in comparable store sales of the heritage outlet retail business and the related decline in gross margin resulting from increased promotional selling given the difficult economic climate.

Net interest expense in the third quarter increased as a result of the company utilizing $200 million of cash during the fourth quarter of 2007 to repurchase approximately 5.2 million shares of common stock. This, coupled with lower investment rates, reduced interest income. Offsetting this negative impact was a planned decrease in the effective tax rate for the quarter as compared to the prior year due to certain discrete tax items in the third quarter of 2008.

Nine Months Results

For the nine months, total revenue on a GAAP basis increased 4% to $1,914.1 million in 2008 from $1,840.7 million for the same period in 2007, driven by revenue growth of 18% in the company’s Calvin Klein licensing business.

Earnings for the nine months in 2008 were negatively impacted by $12 million of start-up costs in the first half of the year associated with the ompany’s Timberland wholesale men’s sportswear business and Calvin Klein specialty retail stores, an increase of approximately $6 million, or $0.08 per share, compared to $6 million of start-up costs for these businesses in the prior year’s nine months.

Earnings per share excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division was $2.65. GAAP earnings per share was $2.48. For the prior year’s nine month period, earnings per share was $2.65.

Balance Sheet

The company ended the third quarter with $197.6 million in cash, a decrease of $139.1 million from the prior year’s third quarter. This decrease was driven by the completion of the company’s $200 million stock repurchase program during the fourth quarter of 2007.

Inventories decreased 1% from the prior year’s third quarter. Inventories at the end of the third quarter of 2008 include an increase of $23 million, or 7%, related to the new Timberland wholesale men’s sportswear business, the opening of additional Calvin Klein specialty retail stores and the recently-acquired Calvin Klein Collection wholesale business. Excluding this increase, inventories were down 8%, which reflects the Company’s continued focus on aggressively managing inventory levels.

Trade receivables ended the quarter 14% above the prior year due principally to the new Timberland wholesale men’s sportswear business and the recently-acquired Calvin Klein Collection wholesale business. Receivables are current and the Company has not experienced a slowing of collections.

2008 Guidance

The company is revising its previous projection for full year earnings per share, excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division, to a range of $3.00 to $3.10. Excluding the operating results and exit costs associated with the company’s Geoffrey Beene outlet retail division, fourth quarter earnings per share is expected to be in a range of 35 cents to 45 cents.

The company is currently projecting full year GAAP earnings per share to be in a range of $2.71 to $2.81, which includes Geoffrey Beene operating results and exit costs of approximately $24 million pre-tax, or $15 million after tax. For the fourth quarter of 2008, GAAP earnings per share is expected to be 23 cents to 33 cents, which includes Geoffrey Beene operating results and exit costs of approximately $10 million pre-tax, or $6 million after tax.

Total GAAP revenue for the full year 2008 is projected to be approximately $2.51 billion to $2.53 billion, an increase of 3% to 4% over 2007. For the fourth quarter, GAAP revenue is expected to be $595 million to $615 million in 2008, an increase of 2% to 5% over the fourth quarter of 2007.

Fourth quarter comparable store sales are planned to be down between 8% and 13% in the company’s total outlet retail business.

Fourth quarter revenue for the Calvin Klein licensing business is expected to be approximately flat with the prior year, as the continued growth of our licensees’ businesses in local currency is expected to be offset by the impact of a stronger U.S. dollar versus the prior year.

The company projects that it will end 2008 with approximately $340 million in cash, with cash flow for 2008 of approximately $70 million. Cash flow for 2008 includes approximately $100 million associated with capital spending and acquisitions.

CEO Comments

Commenting on these results, Chairman and CEO Emanuel Chirico noted, “The recent and rapid deterioration in the overall economic environment in the U.S. and abroad has decreased consumer confidence and spending beyond what we had previously anticipated. This, coupled with the significant strengthening of the U.S. dollar, has caused us to lower our fourth quarter and full year guidance. However, even during this very difficult time, our diversified stable of brands continues to generate strong profits and cash flows.”

“The strength of our balance sheet,” Chirico continued, “which is highlighted by our cash position, significant availability under our revolving credit facility, and no maturities of long-term debt until 2011, provides us with the liquidity that we believe we need to manage our business despite the current volatility in the credit markets. Even in this difficult year, we expect to generate approximately $70 million of cash flow.”

“As we look forward, we believe the current economic environment will continue into 2009. As such, we are reviewing our operating structure, real estate portfolio and capital spending programs to identify opportunities to improve our efficiency, generate expense savings and maximize cash flows. We believe we have a solid financial platform that will allow us to continue to invest in our brands for long-term growth. It is this platform, together with the strength of our brands that should allow us to achieve higher growth rates when the economic environment improves.”

PHILLIPS-VAN HEUSEN CORPORATION
Consolidated Income Statements
(In thousands, except per share data)
   
Quarter Ended
11/2/08
Results     Quarter
Under Non-GAAP Ended

GAAP

Adjustments(1)

Results

11/4/07

 
Net sales $ 636,210 $ (28,597 ) $ 607,613 $ 611,399
Royalty revenue 66,690 66,690 62,851
Advertising and other revenue   24,584     24,584   22,120
Total revenue $ 727,484 $ (28,597 ) $ 698,887 $ 696,370
 
Gross profit on net sales $ 250,026 $ (7,022 ) $ 243,004 $ 243,637
Gross profit on royalty, advertising and other revenue   91,274     91,274   84,971
Total gross profit 341,300 (7,022 ) 334,278 328,608
 
Selling, general and administrative expenses 254,832 (13,099 ) 241,733 226,310
 
Earnings before interest and taxes 86,468 6,077 92,545 102,298
 
Interest expense, net   7,031     7,031   4,105
 
Pre-tax income 79,437 6,077 85,514 98,193
 
Income tax expense   25,738   2,294     28,032   37,314
 
Net income $ 53,699 $ 3,783   $ 57,482 $

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