Good day. And welcome to the PVH Corp. First Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Dana Perlman. Please go ahead, ma'am.

Thank you, operator. Good morning, everyone. And welcome to the PVH Corp. first quarter 2021 earnings conference call. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise transmitted without PVH's written permission. Your participation in the question-and-answer session constitutes your consent to having anything you say appear on any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH's view as of June 2nd, 2021 of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call. These risks and uncertainties include PVH's right to change its strategies, objectives, expectations and intentions and its need to use significant cash flow to service its debt obligations. Significantly, at this time, the COVID-19 pandemic continues to have a significant impact on the company's business, financial condition, cash flow and results of operations. There is significant uncertainty about the duration and extent of the impact of the pandemic. The dynamic nature of the circumstances means what is said on this call could change materially at any time. Therefore, the operation of the company's business and its future results of operations could differ materially from historical practices and results or current descriptions, estimates and suggestions. PVH does not undertake any obligation to update publicly any forward-looking statement including, without limitation, any estimates or suggestions regarding revenue or earnings. Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliation to GAAP amounts are included in PVH’s first quarter 2020 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-K furnished to the SEC in connection with the release. At this time, I am pleased to turn the conference over to Mr. Stefan Larsson, CEO of PVH.

Good morning. And thank you for joining. With me on the call today are Mike Shaffer, our COO and CFO; and Dana Perlman, our EVP, Chief Strategy Officer and Treasurer. I look forward to sharing the progress we are making in building our next growth chapter as we drive towards an accelerated recovery post-COVID to win in the new normal. Before I do that, I would like to thank our entire PVH team for an incredible job in successfully navigating the company through the pandemic and delivering a very strong start of the year. This quarter, we moved from navigating through the pandemic to increasingly coming into an accelerated recovery phase. This has been driven by the disciplined execution of our key strategic focus areas, led by Calvin Klein and Tommy Hilfiger, our international markets, product strength and winning in the marketplace, supercharged by e-commerce. We had a very strong first quarter. We over-delivered on our revenue, gross margin rate and EPS versus our expectations. And the most important part of the strong performance is the underlying drivers behind it, which are important proof points for what we set out to achieve through our strategic focus areas. As we are connecting closer to where the consumer is going, the strength and value creating potential of our global growth brands, Calvin Klein and Tommy Hilfiger, is real and already starting to deliver results. You will remember from our last call that our focus is to win with the consumer by driving brand relevance, taking profitable market share, and further strengthening our platform capabilities, and over time, doing that more efficiently. We're also becoming even more demand and data-driven, enabling us to create value in a more systematic and repeatable way. We believe that our increased and sustained focus on these aspects will drive long-term revenue and margin growth for our shareholders, driven by gross margin expansion and SG&A leverage. Having had the opportunity to see a number of our important markets reopen and having been out walking in stores again, I'm optimistic about what I'm seeing. While the consumer continues to lean into digital, the consumer is also out shopping in stores, and there is a general feeling of optimism and excitement. We are seeing signs of a real shift in consumer sentiment where the consumer is excited to come out of COVID restrictions, reflecting a new hybrid lifestyle. Consumers are evolving their casual and comfort focus to include more elements of self-expression through bolder colors increasingly influenced by the '90s pop culture. This combination of stay-at-home comfort with the joy of being able to socialize again is reflected as consumers mix and match casual essential categories like underwear, lounge, active, and daywear, and we see an increased interest in denim. These consumer trends are positive for the fashion sector overall and for us in particular. Looking ahead, based upon our strong underlying performance, we are increasing our full-year outlook. We are prudently managing our business as we navigate the ongoing effects of the pandemic, including lockdowns in certain markets and supply chain disruptions in countries that are being tragically affected, such as India and Sri Lanka. We are confident in our ability to navigate these uncertainties and continue to drive an accelerated recovery. Let me now turn to some of the key proof points on how our key strategic focus areas positively drove our performance in the first quarter. And Mike will then share financial details. First, we continue to supercharge our e-commerce channel, with digital revenue growing approximately 95% in the quarter, including 66% growth in our owned and operated sites, as we leveraged our multi-channel business model to meet the consumer where they wanted to shop. Next, we continue to increase our focus on driving product relevance across our brands and regions. Across the board, our focus on key growth categories, hero products, and cutting the unproductive assortment tail yielded strong results. And we see increased pricing power and margin expansion in both Calvin and Tommy across our largest markets and channels. Lastly, we continue to drive cost efficiencies across our businesses globally through the initiatives we have underway, and we will continue to efficiently manage our cost structure. Turning to our regional update, despite continued COVID-related challenges in the quarter, including closed stores, our teams drove performance significantly above plan in both revenue and profitability across our businesses globally. We delivered particularly strong results in our international business, which returned to pre-pandemic revenue levels at a faster pace than expected. Let me start with Asia. We remain pleased with our performance in the market. Our performance was led by the strength in China, and despite COVID resurgences in important markets like Japan, Singapore and Korea, our revenues were relatively in line with pre-pandemic levels. Our Asia and China teams continue to accelerate performance through a number of focused and well executed initiatives. China is the furthest along in its recovery overall, and we continue to see increased traffic to our stores in addition to our growing digital business. Overall, revenues were above pre-pandemic levels. Our more focused strategies to strengthen product, coupled with better operational excellence in stores are driving higher conversion and strong full-price selling. We are continuing to realize gross margin expansion from higher AURs. We also continue to supercharge e-commerce by successfully capturing key consumer moments around important holidays with positive responses for new season product launches, which are resonating both online and in stores. We are prepared and looking forward to several upcoming important selling periods, the next being for June 18, which will be supported by strong product and channel execution. Overall, we remain optimistic about the long-term opportunity to grow our brands in Asia as we expand awareness and continue to invest in the market. Moving on to Europe. Our performance in the quarter was truly outstanding. We experienced earlier and much stronger than expected demand from our wholesale partners, who came out of the holiday season with very strong sell-throughs and low inventory levels for both Tommy and Calvin and wanted to be ready for the reopening of Europe. This led to the positive timing-related impact of earlier than expected wholesale shipments during the first quarter versus our plans for the second quarter. However, the underlying business performance in Europe was very strong, driven by our team's disciplined execution of our accelerated recovery priorities, including consistent and very strong product execution across both Tommy and Calvin, combined with a market presence that allowed us to very closely follow where the consumer wanted to shop, which in this quarter meant supercharging our digital channels through our connected inventory, enabling us to meet demand from all channels. We generated strong digital sales growth of over 100%, driven by both our owned and operated sites, as well as sales to our digital partners, particularly pure players, and this growth also benefited from the store closures. It's important to note that as markets have reopened, the consumer has come back to our stores with better than expected traffic. For both Tommy and Calvin, we continue to gain market share, driven by strong consumer demand for our product, resulting in increased pricing power and margin expansion. For Tommy, we continue to see strength for both men's and women's sportswear across multiple product categories, including a strong and rising trend for denim. For Calvin, underwear and casual essentials remain key performance drivers in addition to new denim silhouettes. Footwear, our newest category, which was recently brought in house, is seeing strong consumer acceptance across all markets. The momentum in our future order book continues to be very strong with fall holiday 2021 now finalized and it's up double digits versus the prior year and pre-pandemic levels. We remain very confident in our team's ability to continue to drive sustainable, profitable growth in Europe for the remainder of the year and beyond. However, given the positive timing impact in the quarter, we are not expecting to see the same level of outperformance in the coming quarters. Turning to North America. During the first quarter, our inventory levels were very clean and we bought conservatively, which led to improvements in AUR and gross margin. However, sales were still down significantly in the quarter compared to pre-pandemic levels. As I have mentioned previously, the lack of tourism in North America, which pre-pandemic accounted for 30% to 40% of our revenues in the market, has negatively impacted our business. We expect to see tourism come back gradually over time, although this is very much dependent on the pace of vaccinations in the rest of the world and the loosening of travel restrictions. Lastly, during the quarter, we had 50% of our stores in Canada closed due to COVID restrictions. In the meantime, we are leveraging our learnings and leaning in to build more strength with our domestic consumer. From this focused work, we already see a number of important initial proof points. We grew digital over 60% with growth on both our owned and operated sites, as well as sales to our key wholesale partners, including digital pure players. In stores, we saw increases in traffic with the domestic consumer, although not enough to offset the lack of international tourism. Importantly though, this improved domestic consumer performance came in the result of less discounting, increased pricing power, and strong margin improvement. From a product perspective, our inventory position is very good and we have started to see the positive effects of our key category and hero product focus, as well as from cutting the unproductive assortment tail. So, even though the top-line is still very challenged by the tourism effect, below the surface, we are seeing strong positive comps for important hero products that performed significantly above pre-pandemic levels. While we are pleased to see these early positive signs from our accelerated recovery focus, we recognize that we still have much work to do to unlock the regions for potential. Even if it's still early days for Trish, who just joined us a few months ago in the role of CEO for PVH Americas, I'm very encouraged by how she and her team are starting to drive product strength with pricing power and margin expansion, as well as doubling down on e-commerce growth in both direct-to-consumer channels and through our wholesale partners, and we see significant opportunity for the region. Next, I would like to share a few brief global brand highlights, beginning with Calvin Klein. Global brand health remains strong with consistently high levels of awareness, as well as increased purchase intent. During the quarter, Calvin launched its first global product collaboration with Heron Preston. The collection focuses on reinvented essentials true to the Calvin Klein brand DNA and connected to where culture is today. The response to date has been very positive, and we have a number of encouraging learnings. Globally, the collaboration has attracted a new, younger, and very valuable consumer. We have seen strong consumer demand across product categories, starting with underwear. However, the fastest selling product categories were denim, trucker jackets, hoodies, and t-shirts, which demonstrates Calvin Klein's strength and potential as a true multi-category lifestyle brand. Through this collaboration, we have also seen higher AURs and average order value than any time before in recent history. We will continue to build out collaborations and campaigns to fuel brand heat and cultural relevance. One important campaign right now is our Pride capsule, which cuts across social, e-commerce, and stores. Moving on to Tommy Hilfiger. We continue to generate increases across all brand health KPIs, including awareness, visibility, and consideration, as well as strong search interest. In Europe, Tommy drove strong sell-through for our spring capsules, including our collaboration with Patta, the Amsterdam-based streetwear brand, which was very well received. Additionally, the brand made another step towards circularity with the launch of our first limited edition upcycle collection. The remix collection is part of the Tommy for Life program and a pioneering circular business model using pre-loved Tommy Hilfiger and Tommy Jeans products and marks another milestone in our sustainability vision. We also launched the third installment of Tommy's DROP SHOP, with an artist capsule co-designed with London-based creative Stevie Gee, featuring limited-edition hoodies and tees. And finally, turning to our Heritage business. While we saw some improvements in our Heritage Brands this quarter, the business continued to face challenges. We remain on track to exit the remaining Heritage Brands retail stores this summer. Our intimates business performed well during the quarter with solid revenue growth compared to both last year and pre-pandemic levels, all while still under pressure, we have started to see some early signs of improvement in our dress shirt business, as people re-engage in social activities and return to offices. For the Heritage Brands, we are continuing to actively review additional ways to optimize the business. In closing, I feel very good about the strong performance we drove in the quarter, and I am confident in our ability to continue to execute an increasingly strong recovery, as reflected in our increased full-year guidance. In addition, I feel particularly pleased with the disciplined way we achieved the growth in the quarter and how that positions us for sustainable, profitable growth for many years to come. I'm proud of how our teams continue to lean in to what's within our control to drive an accelerated recovery and position us as one of the winners in the new normal. Every quarter, we are taking further steps to get even closer to where the consumer is going. And I look forward to continuing to share more with you about the progress along the way. And before I hand it over to Mike, you will have seen that yesterday, we announced a couple of updates regarding our global leadership. Cheryl Abel-Hodges will be stepping down as Chief Executive Officer of Calvin Klein, moving to an advisory position on July 1st. Trish Donnelly, CEO of PVH Americas, who has had oversight of Calvin Klein, will now take full global responsibility for the brand. I would like to extend my sincere thanks to Cheryl for the valuable impact she has made during her 15 years with the company in many areas of our business. And we also shared that after 30 years with PVH, Mike will be leaving to pursue other opportunities. Mike will be with us through September, so we will have time to celebrate his many contributions to the company. So for today, I would like to say thank you Mike for your partnership and stewardship over the years and for helping us build a strong foundation and strong leaders and teams we have today on which we will continue to build. So with that, I would like to hand it over to Mike.

Thanks, Stefan. The comments I am about to make are based on non-GAAP results and are reconciled in our press release. Overall revenues for the first quarter were up 55% as reported and up 46% on a constant currency basis compared to the prior year and exceeded our prior revenue guidance, driven by growth across all regions and channels. Revenue in our international business exceeded 2019 pre-pandemic levels. When we think about the comparison of 2021 versus first-quarter results to the prior year, it is important to remember that during the first quarter of 2020, virtually all of our retail stores and our wholesale customer stores were closed globally for 6 weeks on average as a result of the pandemic. Our total direct-to-consumer business was up 66% versus the prior year, including a 66% increase in digital commerce across all regions and brands. Our retail stores faced continued pressure during the first quarter, although to a much lesser extent than in the previous year, with a significant percentage of our stores temporarily closed in Europe, Canada, and Japan. All regions and brand businesses experienced strong digital growth due in part to the continued store closures, particularly in Europe. Although we expect digital penetration to remain consistent for the rest of the year, we expect digital growth will not be as pronounced as stores reopen. Our wholesale revenue was up 53% versus the prior year, including very strong sales to our digital channels. The increase was driven by strong performance in Europe due in part to an unplanned shift in the timing of wholesale shipments into the first quarter from the second quarter. Looking at our segments, Tommy Hilfiger revenues were up 63% as reported and 52% on a constant currency basis, with international up 78% as reported and 63% on a constant currency basis. North America was up 25%. Calvin Klein revenue was up 65% as reported and 56% on a constant currency basis with international up 91% as reported and 77% on a constant currency basis. North America was up 27%. Our Heritage revenues were up 9%, which included a reduction of 14% resulting from the sale of our Speedo North America business in April of 2020. Gross margin was 59.1% for the quarter, as compared to 49.5% in the prior year, which reflected improvements across all regions and brands due to less promotional selling, a favorable shift in regional sales mix, and the absence of significant inventory reserves that have been recorded in the prior year. We continue to tightly manage our inventory, which decreased 7% at the end of the quarter as compared to the prior year. Earnings per share was $1.92 on a non-GAAP basis for the first quarter of 2021 and was $1.09 higher than the top end of our previous guidance. The beat included the impact of the unplanned timing shift of Europe wholesale shipments into the first quarter from the second quarter that I previously mentioned, as well as a shift of advertising and other expenses out of the first quarter into the remainder of the year. Together, these timing shifts represent approximately $0.40 of the beat with the balance of $0.69 due to the business outperformance across all regions and brands. Notably, our EBIT margin was very strong at 12% for the quarter. This was due to the favorable shift in regional sales mix, as our international business generally carries higher operating margins, as well as unprecedented strength in our international businesses' EBIT margins. The strength in international was due in part to Europe channel mix, as a larger portion of revenue came from the wholesale channel, including sales to our brick-and-mortar and pure-play digital customers, which carry very low expenses. The higher proportion of Europe wholesale was due to a significant percentage of our stores being temporarily closed and the unplanned timing shift of wholesale shipments into the first quarter from the second quarter. Moving on to our outlook. We are providing our 2021 outlook despite the significant uncertainty due to the pandemic and, as such, it could be subject to material change. Our outlook does not contemplate any new store closures, new lockdowns, or extensions of current lockdowns beyond what is already known. We continue to monitor industry-wide supply chain headwinds and our outlook contemplates certain inventory delays of approximately 4 to 6 weeks on average, which are expected to result in additional air freight and other costs in order to maintain our sales plan in the second half of the year. While we have been able to successfully react throughout the year to delayed shipments, thanks to the strength of our supply chain, the current volatility in the industry may further impact our results in ways that we cannot currently predict. Our actual 2021 results could differ materially from our current outlook, as a result of the occurrence of any uncompensated events. We continue to be encouraged by our international businesses, which have exceeded and are expected to continue to exceed pre-pandemic levels throughout the remainder of 2021. We expect North America to continue to face the ongoing challenge of reduced international tourism, which is the source of a significant amount of revenue, and not expected to return to pre-pandemic levels within the year. Additionally, our outlook reflects approximately $20 million of estimated operating losses associated with the wind down of the Heritage Brands Retail business in the first half of the year. For the full year, we are projecting revenue to grow approximately 24% to 26% as reported, and approximately 21% to 23% on a constant currency basis compared to 2020. We expect gross margin will continue to show improvements in 2021 compared to 2022, due to less promotional selling, though we do not expect a significant improvement for the remainder of the year, as we experienced in the first quarter, due in part to a less favorable shift in the regional sales mix, as growth in our international businesses, which generally carry higher gross margins, was more pronounced in the first quarter relative to our lower margin businesses in North America. We continue to manage your cost structure proactively, including reducing operating expenses and reallocating resources to support growth areas of the business. We continue to expect the increase in gross margin percent in 2021 versus 2020. And the decrease in operating expenses as a percentage of revenue in 2021 versus 2020 will be relatively similar in magnitude, with each worth a few hundred basis points. We expect EBIT margin will continue to show improvement in 2021 compared to 2020. Although we do not expect a significant improvement for the remainder of the year, as we experienced in the first quarter due to a less favorable shift in regional sales mix. We also do not expect the unprecedented strength we realized in our international businesses in the first quarter to continue with that level for the remainder of the year, as stores have reopened and our wholesale business becomes a smaller proportion of the business. We expect our interest expense to decrease in 2021 to approximately $110 million. We are planning debt repayments of $700 million for the full year, which is equivalent to the incremental borrowings we took on in 2020 to manage through the pandemic. As of today, we have already made repayments of $600 million. This includes $500 million of repayments made in the first quarter and an additional $100 million made after the quarter. Our tax rate for the year is estimated at 17.5% to 19%. As a reminder, when we think about our tax rate by quarter, we expect that rate for the first three quarters will be relatively similar, with the fourth quarter expected to benefit from certain discrete items, which bring down the overall rate for the year. For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $6.50, which is an increase compared to our previous guidance of approximately $6. Our current projection reflects an increase from our previous guidance of approximately $0.69 due to the business outperformance experienced in the first quarter. And while we are cautiously optimistic, we are prudently planning the balance of the year, given supply chain disruptions and overall macro uncertainty. For the second quarter, our revenue is projected to increase 34% to 36% as reported and 29% to 31% on a constant currency basis. Second quarter non-GAAP earnings per share is planned in the range of $1.15 to $1.18 compared to $0.13 in the prior year period. We expect interest expense to be about $27 million and taxes to be in the range of 36% to 38% in the second quarter. And with that, operator, we'll open it up for questions.

Thank you. We can now take our first question from Erinn Murphy of Piper Sandler. Please go ahead.

Great. Thanks, good morning. And Mike, you will be greatly missed. My question is for Stefan. Just on the overall acceleration in denim that you spoke to. Can you remind us what percent of the overall business is denim? And how sustainable is the traction that you are seeing in the overall category?

Yeah. So we see - hi, Erinn, good morning. So as I mentioned in my remarks, we see increasing demand, consumer demand in denim for both Calvin and Tommy. And what we see is the mix between - we see the mix between the consumer continuing to shop casual essential categories for the at-home piece of their life. And now when - especially in the markets where the restrictions are opened up from COVID, we see the consumer excited and increasingly going out. And so it's a mix, we see this hybrid lifestyle, and denim is an important part there. So we see the strength in casual essentials and then we see denim, we see colors. So overall, as I mentioned is we see strength for that being positive for the industry as a whole and for us in particular.

Great. And then just a follow-up for Mike. Could you share a little bit more about what you're seeing with input costs right now? And then are there price increases that need to be contemplated to offset any potential pressure? Thanks so much.

Yeah. Look, for 2021 we're seeing low single-digit kind of increases. But as we look to spring and the future, we're seeing mid-single digit kind of increases. So the supply chain is under pressure to some degree. At this point, we're working through it, Erinn, and we're trying to understand what we can do on the product side to mitigate against those costs. Also looking at what we can do on the country of origin side to see where we can go to mitigate those costs. So it's a work-in-process. But yes, if we don't see the - if we cannot mitigate those costs, we will have to see some sort of increases as we move through into next year and beyond. But for this year, I think the impact to be relatively minimal.

Great. Very helpful. Thank you.

Thank you, Erinn.

And we can now take our next question from Michael Binetti of Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking our questions. And Mike, I'll add my congrats and thanks so much on all the help over the years. Stefan, we talked about this a bit last quarter. But I think that, you know, in the US, Tommy and Calvin were lower than the first quarter of '19 by roughly 40% each. I think you pointed to tourism, so maybe that explains some of the downside to that 2019 watermark. But can you talk to us a little bit more about where you see the US business over the next few years? Should we think about it as revenue being lower than the 2019 mark for a few years and the bigger focus is on profitability or should this really be approaching those 2019 revenues over the next year or two? Maybe some of just your bigger picture thinking on the region? And then I'll have a follow-up after that.

Okay. Thanks, Michael. So starting with North America. So yes, to your point, we have a big negative tourism effect. So in a normal year, we have 30% to 40% of our business across Calvin and Tommy driven by tourism, and a big part of that is temporarily gone. And we are - over time, we will see that come back. The question is how soon it will come back. Then we have had 50% of Canada, it's worth mentioning, as well that has had a negative effect. But underneath there, we have a lot of work to do with the domestic consumer in North America. So we're already leaning into this opportunity, as you know. So a big important part was Trish, the leadership, Trish came in. Trish Donnelly as our CEO for PVH North America. She has high-performance experience from 6, 7 years as the CEO of Urban Outfitters, winning with the young consumer, winning with product, pricing power, driving digital to best-in-class shares. So, under the surface of the negative tourism effect and the Canada closures, we see some important proof points. So we see that digital, we were able to drive digital sales 60% up. We were able to drive product strength. So we were able to drive sales to the domestic consumer with higher pricing power, increased gross margins, and less discounting. But this is an opportunity that we will continue to lean into. And when it comes to the future years, we'll come back to that, the more clarity we get from navigating through COVID.

Okay. And then I guess you raised the operating margin guidance for the year 7.5% to 8%. I think that pegs about 800, 850 basis points above 2020. And I think when we talked, you said about half of that improvement will come from gross margin and half from SG&A on the basis points there. That puts gross margin about 57%, so you know, well above the 54.7 you had in 2019. But I think that still points to SG&A around $4.4 billion, and that's maybe just a touch lower than where you were in 2019. And I think the revenues are planned about 9% lower than 2019. So I wanted - I'd love to hear your thoughts on the sustainability of that, just the cost structure on the level is being very similar to 2019, you mentioned the focus on efficiency and managing costs tightly a few times here in the last few conference calls. So how do you think about where, you know, how to plan the SG&A going forward? Is that a sustainable budget for where you see the revenues over the next few quarters and years?

So when it comes to - I'll start and then hand it over to Mike. But when it comes to operating efficiencies, we'll start with - there is a mix shift in the operating efficiencies. So within each region, we are driving more efficiencies than what you see in the total. What we already have done is we set out to save $250 million where, on an annualized basis, that we have secured and we have reinvested $100 million of that. So, we have $100 - so far, we have $150 million run rate net yearly savings. And we will continue to drive efficiencies and we will find ways to simplify how we do business. So, with that, I'll hand it over to Mike if you want to give some more details.

No, I think you hit most of the highlights, Stefan. I think as we grow that international - if the international business continues to grow fast in the North America business, you have a higher gross margin, higher operating margin – higher operating expense, higher operating margin business. So part of what you're seeing is this mix shift. If the tourism comes back, I think you'll start to see more of a shift back to North America and a lower operating expense margin. So, it's - part of this is significantly driven by the shift in where the business is being done.

And just to build on what Mike just said, Michael, we've got to continue to drive efficiencies year-over-year and reinvest to make sure that at the same time we reinvest in the growth areas.

We can now take our next question from Jay Sole of UBS. Please go ahead.

Great. Thank you so much. And Mike, let me add my congratulations as well on a great career at PVH. I want to ask a little bit about Europe because I think there's a question about, you know, was the strength in Europe this quarter driven by restocking or some sort of opportunistic opportunities based on maybe what you were able to deliver versus other companies? Or was it really about strong sell-through, you know, product and brand strength? And can you tell us a little about the order books and how they build up for fall of '21?

Yeah. So I'll start. Jay, which is - thank you. So Europe had a really, really strong quarter. So, there was a one-time effect from the timing of the wholesale shipments, and Mike will be able to give you a little bit more details around that. But when we looked underneath that was very, very strong performance. So, the brand relevance that we are able to execute in Europe, the product strength, and the pricing power, the margin expansion, and then how we have been able to, for a long period of time now, follow the consumer in how we win in the marketplace. So, we see Europe's strength continue and we see Europe opening up again after the lockdown from COVID. And we have full confidence in our team's ability to continue to build on the strength we already see. So, with that, I'll hand it over to Mike to describe a little bit more of the one-time effect. But what excites me the most and what I'm interested in is, what's the long-term strength of the business, and it's very, very strong. And when we break it down into the underlying value drivers of what drives profitable market share growth, sustainable profitable market share growth, Europe ticks all the boxes there. So, very, very strong performance from the team.

Yeah. Look, it was a great quarter, as Stefan said, and we beat the top end of our guidance overall by $140 million. Europe was a big piece of the beat. Coming into the quarter, there were lockdowns, there were store closures, and there was a lot of uncertainty around how stores would open. We had goods planned for early shipment in May. It was about $40 million worth of product sales that we were pleasantly surprised there was demand, and the customers asked for the goods in April, so the goods shipped. So - and that was part of our beat for the quarter. So out of the $140 million, about $40 million of the beat was Europe wholesale sales. And then for the balance of the year, we basically held to our previous guide, really didn't reflect any changes on revenue, and we flowed through the other $100 million in revenue beat for the year.

And Europe - yeah, go ahead, Mike.

No, I just wanted to mention the order books. The order books for the fall holiday season are up double-digits. Those are not frozen. So we are really happy with the performance there and just shows continued strength in that business.

Just to build on what Mike was just saying and building out on your question, Jay, when it comes to Europe's performance and the sustainability we see in that performance, and we also see that the accelerated recovery priorities that we set out as a company to drive when we hit COVID are really driving the performance now and will continue to drive the performance. So when we have focused in on our core strength, Calvin and Tommy is over 90% of our revenues. International, which Europe is a big part, it's over 60% of our business. And we see strength in Europe, strength in Asia. And then we focus in on product strength, and we see AUR growth, gross margin rate improvements across the board. And then we focused in on connecting even closer to where the consumer is going in the marketplace. And Europe is leading there, as you know, from an e-commerce contribution. But overall, as a company, we are now 25% e-commerce contribution and drove almost 100% growth. So that - and then you layer on the efficiencies of $250 million savings. So that's where I keep my focus, which is as a management team that what we - how we said we were going to drive the business is how we are driving the business, and we see the strength continue and that's why we take the year out.

We can now take our next question from Omar Saad of Evercore. Please go ahead.

Good morning. Thanks for all the information. Mike, congratulations and best wishes. I'd love to ask a broader question for your thoughts on, you know, the strong gross margin trends industry-wide, lower promotions is something we've been hearing consistently. What's your view on the sustainability of that element of the gross margin strength, as the industry rebuilds inventories? Do you expect the promos to return over time? And I have a quick follow-up. Thanks.

So thanks, Omar. So the way we look at it is a big part of how we're going to drive the P&L going forward is through the gross margin rate expansion. And part of that is mix shift from doubling down on international and part of it is a result of how we drive product strength. So that we focus in on key growth categories, hero products, we continuously cut down unproductive SKUs. So we see that we're just in the beginning of that journey. So over the coming few years, we see that gross margin rate will be a very important component in how we deliver value.

Yeah. Omar, I would just add on the sector, we all plan - we came out of the pandemic with inventories down, not just us, but our customers, our competitors. I do think there was a significant amount of clearance that wasn't in the sector. I do think as time goes on, we probably will see some increase in that level of clearance in our customers and how the business just operates normally day-to-day. But I hope that there was a lesson learned about levels of clearance and that we see some opportunities in the future to just have less clearance and higher gross margins.

And that connects to just what - building on what Mike just said, that connects to our focus on planning and buying inventory closer to demand. And that is a journey we just started on, but there is real value creating potential in that.

Understood. That's actually really helpful. And then, what is the role, and where are you on data analytics and your ability to use data analytics, not just to engage with consumers directly, but in things like inventory planning and merchandising?

Yeah. So we are quite far ahead when it comes to having the tools and the methodologies to use data to become more demand-driven. Then it's the journey we are on is to adjust the way we create assortment, plan the assortment, buy it, allocate it to really take full advantage of those data capabilities. So I've been coming into PVH. I've been positively surprised by the data capabilities that we have. The work we have to do now is to apply that to how we plan and buy the business.

We can now take our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead.

Great. Thank you so much. Good morning. I wanted to just ask about how you're thinking about strategies to manage through the supply chain disruptions that you're seeing. I think Mike, you mentioned higher use of air freight, but I would imagine that you've got a sort of wide range of strategies that you are looking at to try to ensure that you can deliver goods and as timely a manner as possible. So I was wondering if you could just outline those for us. And then secondarily, Mike, just a clarification on your international margin discussion, we understand its higher gross margin that comes with higher SG&A is the aggregate EBIT margin internationally higher as well? Thank you.

I'll do the clarification first, yes. The international business is typically run with higher gross, expense, and operating margins being higher, so that's been our - that's typically how we operate. On the supply side, we are seeing uncertainty. There are delays, but there is just some uncertainty surrounding the supply as well. So as we look at some of the countries where we do significant amounts of business, India for knits and Sri Lanka for underwear. Those countries are under lockdowns. India is closed. There are - we're not allowed to – our factories were not allowed to operate. And in Sri Lanka, we're partially open, and factories are operating, but capacity is an issue. So it really - what's concerning to us is when these factories will come out of those lockdowns and how they will open and how fast. Scheduling is that they'll open in the first week of June. So it's coming up quickly, and we'll have greater visibility in the next couple of weeks. As some moving goods, it really isn't just airfreight. We have many different modes of expedited freight. So, we can use faster ships, believe it or not, our air freight. We have found air freight constrained. There were not a lot of flights, but we are looking on certain product categories. And underwear is particularly one where we can get goods in quicker, and the cost is not great. The goods are smaller in scale in terms of size, and we can put quite a few into a path. So, each order is looked at individually and we manage just PO-by-PO.

And to Mike's point, the projections of how we are taking up the year, the guidance for the year, the projections, what's in that guidance is the current view we have on the supply chain situation. And if it opens up sooner than what we expect, then we have upside.

We can now take our final question from Ike Boruchow of Wells Fargo. Please go ahead.

Hi. How are you? This is Will on for Ike. I just wanted to ask about - it sounds like you're taking price across the board, across Tommy, across Calvin. What inning do you guys think you're in? And how - what's sort of the average price increase for the products?

Well, it's hard to say we're changing because I see it as a continuous work that we have to - that when we continuously drive brand relevance with the young consumer, we are also driving our ability to drive revenue with increased pricing power. And then how we do that is that we break it down into the different product categories and different hero products. So, it's - that's overall, we are early on the journey of driving pricing power and margin expansion and this is a job that we will continue for many years. It's part of our growth algorithm.

Got it. That's helpful. And just to dig in a little bit more on Omar's question, you obviously have these significant tailwinds like this outsized expansion in 1Q. Can you just frame how we should think about gross margin going forward? How much of these tailwinds are transitory, how much is structural? Is it half of it, is it half? Is it two-thirds? Can you just sort of frame out how we should think about gross margin and how sustainable it is?

Sure. Look, I think the guide on gross margin is a couple of hundred basis points up over the prior year. I think somebody called it out earlier, operating margins, call it, 7.5% to 8%. So pretty much flat to zero operating margins last year. So half of that is coming through as gross margin improvement, going from the zero to the 8%, so call it, 350 to 400 basis points kind of improvement. So, that's for the year. As you think about it by quarter, the first quarter was a big part, but we are going to be up in every quarter as we work through quarters two, three and four. So I think that puts in the box for you.

And just building on that is when we look at the gross margin rate improvements that we plan for the remainder of the year and onwards is there is an international piece, there is a product strength piece, and there is a planning and buying closer to demand piece.

Understood. Thank you.

All right. So with that, we thank you all for joining. And we look forward to reconnecting next quarter.

This concludes today's call. Thank you for your participation. You may now disconnect.