Good day and welcome to the PVH Q3 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. third quarter 2021 earnings conference call. Leading the call today will be Stefan Larsson, PVH’s Chief Executive Officer, Jim Holmes, EVP, interim Chief Financial Officer and Corporate Controller. 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 in any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH’s view as of December 1, 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 these 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. Reconciliations to GAAP amounts are included in PVH’s third quarter 2021 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’m pleased to turn the conference over to Stefan Larsson.

Thank you, Dana. Good morning everyone and thank you for joining our call today. For the third quarter, we delivered another strong quarter of high-quality growth driven by the disciplined execution of our accelerated recovery priorities across both Calvin Klein and Tommy Hilfiger, driving brand and product strength with increased pricing power, supercharging ecommerce to win in the digitally-led marketplace where we are on track for a 25% digital penetration of our total business for the full year, double pre-pandemic levels, all while increasing our discipline in driving cost efficiencies and investing in growth. All this has resulted in much better than expected EBIT margins and EPS. We significantly exceeded our guidance with EBIT margins for the quarter above pre-pandemic levels and our gross margin rates up 300 basis points versus 2019. Our international businesses continued to execute very well across brands with increased product strength and strong consumer engagement, both online and in stores. This resulted in strong sales growth, significantly increased pricing power, and margin expansion compared to both last year and to pre-pandemic levels. In North America, despite worsening logistics disruptions including U.S. port delays towards the very end of the quarter, which shifted revenues from the third to the fourth quarter, the region is still on track to deliver against the full year plans. Without this shift of revenues to Q4, we would have exceeded our overall revenue guidance for the quarter. Looking ahead at the full year, despite the COVID-related disruptions we are all currently navigating, based on the strength of our underlying performance trends and most recently through early positive reads of the start of our holiday season, we are affirming the upper end of our revenue guidance and are increasing our earnings guidance for the full year. We are raising our EBIT margin guidance to nearly 10%, which is above 2019 and pre-pandemic levels. Our guidance is based on the knowledge we have of the COVID situation today and how we have successfully navigated through previous COVID resurgences, yet we are carefully monitoring developments around the new COVID variant and its impact on the consumer. Let me now turn to our regional update, starting with Europe. Our Europe team delivered another very strong quarter with continued market share gains. Both Tommy and Calvin generated strong double-digit revenue growth compared to pre-pandemic levels with gross margin expansion above 2019 levels, driven by strong full-price sell through which, combined with ongoing cost efficiencies, drove significantly higher operating margins well above pre-pandemic levels. The region’s strong results highlight how we are successfully meeting the consumer through a digitally-led omnichannel approach and continuously elevating the brand positioning through having the best hero products in the market for both Tommy and Calvin. Continued demand for our brands and products drove higher conversion and sell throughs with strong sales in both our owned and operated channels as well as our wholesale channels. We generated digital sales growth of 23% which included double-digit growth for both our owned and operated channels and third-party partners, especially with digital pure players. Our investments in building direct digital consumer connections through our own digital business continued to drive engagement and fuel high-quality growth. Our brick-and-mortar retail business significantly outperformed our plan and, impressively, delivered double-digit growth above pre-pandemic levels. Demand in our core replenishment business remained strong on top of future order books for spring 2022 across brands, which as a reminder are up double digits. I visited over 40 stores across four countries in Europe this past quarter and it was incredibly exciting to see the key drivers behind the region’s performance and to meet and learn from the teams that are directly driving these strong results. The way we focus on the consumer, drive brand elevation, product strength, pricing power, and winning across the marketplace led by digital all serve as a blueprint for the type of top-tier execution and financial performance that we will over time be able to deliver for Calvin and Tommy across all our regions. While we are closely monitoring the recent COVID resurgences in multiple markets in Europe, our business there has demonstrated strong resilience during previous COVID resurgences with our ability to pivot to where the consumer is going faster than most of our competitors by leveraging our connected retail capabilities. Moving on to Asia, I remain excited about the progress and the underlying performance in the region. Results were led by China, which outperformed our plan, while revenues for the region overall were in line with pre-pandemic levels and trends were consistent with the prior quarter. This is despite facing additional COVID resurgences across markets, which was particularly pronounced in Australia. For a significant portion of the quarter, over half of our stores in Australia were closed, and we are now pleased that strong consumer demand has returned as the market has been able to open up again. In Asia, we continue to invest in driving growth and building awareness for our brands, focusing on key consumer moments, strengthening product storytelling for key categories and hero products, and enhancing the consumer experience in our stores. With our focus on driving brand and product relevance, our regional and local marketing campaigns are resonating with consumers as we saw strong performance of our fall and winter collections, and we continue to build brand heat and strong engagement particularly around key holidays. For example, China’s 11/11 Singles Day outperformed our plan with double-digit sales increases for both Tommy and Calvin with strong full-price selling, which follows a nice improvement of traffic in the market. We also continued to further enhance the consumer experience, both online as well as offline through new concepts. Ahead of Singles Day, we hosted a CK Jeans House of Denim pop-up in Shanghai. This event showcased brand storytelling and featured interactive consumer engagement activities, driving significant social media exposure with over 300 million impressions. Online, our interactive experiences on TMall and live streaming events are achieving high viewership and engagement, and we are excited about the upcoming special product capsules and 360 digital activations in honor of the Chinese Lunar New Year. In addition, inventory levels continue to be very lean as we are buying inventory closer to demand. Turning to North America, the region continued to face pressure from the lack of tourism, which pre-pandemic accounted for 30% to 40% of our total revenues in the markets. In addition, towards the end of the quarter, as I mentioned earlier, we experienced worsening U.S. port delays in October which pushed some of our revenues from Q3 to Q4. Inventory receipt delays have also impacted our retail businesses in this region, especially for Tommy Hilfiger which has a higher penetration of seasonal product offerings; however, there are some early green shoots and we saw borders begin to reopen. In the quarter, I had the opportunity to visit 30 stores in five regional markets in North America, and I remain very encouraged about the multi-year opportunity to unlock a sustainable, increasingly profitable business for both brands. Given the lack of tourism due to COVID, our teams are leaning into our accelerated recovery priorities with a much increased focus on the domestic consumer, particularly with Gen Z and millennials, driving towards increased product strength with pricing power and supercharging ecommerce while winning in the whole marketplace in a balanced and sustainable way. Some proof points of our progress this quarter include: we continued to drive less discounting and higher AURs as domestic consumers responded well to newness in our fall product, especially in our focus categories and iconic hero products such as knits, fleece, denim, and underwear. For example, ahead of the holiday season, Calvin partnered with Amazon Fashion, Amazon Live, and Amazon Music to deliver a shoppable live stream holiday special with platinum selling hit rapper, Saweetie. The event drove the highest traffic day on the CK Brand store on Amazon Fashion outside of Prime Day. Overall, as we have shared before, we know we have the most work to do in the North America region to unlock the multi-year opportunity ahead. This is something we are leaning into with full force and we’ll keep you updated along the way. Next, I’ll share a few brief global brand highlights beginning with Calvin Klein. Global brand health remains strong with a recent increase in purchase intent, along with continued strong global awareness. This past quarter was great globally for hero products in our key focus categories with double-digit growth in sales and much higher AURs. Our global fall campaign, the Language of Calvin Klein, resonated very well with our consumers, featuring regionally relevant ambassadors including Jenny Kim, Damson Idris, and Kaia Gerber, and focused on hero products in support of key seasonal categories like underwear and jeans. We also continued to connect our iconic Calvin Klein brand to people who shape culture by launching the second chapter of the brand’s collaboration with designer, Heron Preston. The response has been very positive and as we saw with the first drop, many styles sold out very quickly. Celebrities and influencers, including Squid Games star HoYeon Jung, continue to wear and organically post our products. The collection continues to deliver higher AURs, higher sell throughs, high conversion, and highlighting the strength and relevance of our collaborations when we connect our brand to culture and the younger consumer. We are looking forward to the upcoming holiday season and we have a strong social media-based campaign planned for this key selling period. Moving onto Tommy Hilfiger, consumer connection, brand awareness and brand relevance remain strong with a unique DNA of Tommy as a key growth engine for our business globally. Consumers responded very positively to our seasonal collections. For menswear, the expansion of hero product programs such as the 1985 menswear essentials collection continue to drive strong results. Our recent collaboration with Timberland has been very well received. This unique iconic collaboration drove brand heat and exceeded expectations in traffic and sell through with an authentic focus on sustainability and inclusivity. In Europe, we saw strong double-digit increases in traffic in activated stores and on tommy.com, and we achieved 100% sell through within two weeks. The collaboration is attracting new audiences with 40% of site visits being made by new users, and we experienced a significant increase in average spend. In North America, the capsule is gaining momentum. Over 200 million consumer impressions were generated across media in two weeks, and significant buzz was generated at ComplexCon through a dedicated brand activation during the event. Lastly, the brand recently kicked off its World of Hilfiger holiday campaign, which welcomes the holiday spirit, embracing traditions, fresh beginnings, and the brand’s New York City roots. In closing, as I have shared previously, when the pandemic hit, we first set out to successfully navigate through the initial phase of the COVID crisis, which we did and to do that in a way that sets us up to drive an accelerated recovery which we are now driving, all while positioning us to win in the new normal coming out of it. We look forward to sharing more of how we will win in the new normal when we present our multi-year growth plan at our upcoming investor day in mid-April. It will be the first investor day for PVH in over 10 years, and it will be an important moment for us to take you through our strategy and long-term performance targets as we look ahead to tapping into more of our full potential, focusing in on our core strengths, connecting them closer to where the consumer is going than any time before, all with a goal to win with the consumer, drive long-term profitable growth while driving fashion forward for good. On investor day, I look forward to introducing you to our regional and brand leaders who are key drivers on this journey. Before I turn the call over to Jim, I would like to thank all our associates around the world for your hard work and critical contributions this year, and I wish everyone a happy, healthy and safe holiday season. With that, I’d like to hand the call over to Jim.

Thanks, Stefan. The comments I’m about to make are based on non-GAAP results and are reconciled in our press release. Overall, revenues for the third quarter were up 10% compared to the prior year but below our previous guidance due to worsening logistics disruptions in October, including significant U.S. port delays which resulted in a 4% negative impact from an unplanned shift in the timing of U.S. wholesale shipments from the third quarter into the fourth quarter. Absent this shift, our revenues for the third quarter would have exceeded our guidance. Third quarter revenue also reflects a 4% reduction from the sale of the heritage brands business, which closed on the first day of the third quarter, and also the exit from the heritage brands retail business that was substantially completed in the second quarter of 2021. Our retail stores faced continued pressure during the third quarter with a majority of stores temporarily closed in Australia for most of this year’s quarter. Owned and operated digital commerce increased 21% and our overall revenue through our digital channels grew approximately 15% on top of exceptionally strong growth in the prior year. The impact of foreign currency translation on our revenues was immaterial for the quarter. Looking at our segments, Tommy Hilfiger revenues were up 12% with international up 11% and North America up 13% versus third quarter of 2020. Calvin Klein revenue was up 22% with international up 19% and North America up 27%. Our heritage revenues were down 36%, which included a 40% decline from the heritage brands transaction and the exit from the heritage brands retail business. Gross margin was very strong at 57.7% for the quarter as compared to 52% in the prior year, and an increase of over 300 basis points compared to 2019 pre-pandemic levels, which drove operating margin expansion. The improvement was primarily due to increased full-price sales and a favorable shift in regional sales mix which more than offset higher freight costs, including an increase in air freight. Inventory was down 7% at the end of the quarter compared to the prior year, primarily due to the heritage brands sale and the exit from the heritage brands retail business. However, within our total inventory, our on-hand levels were down mid-teens versus last year while our in-transit inventory levels increased over 50% due to extended lead times from supply chain and logistics disruptions, including U.S. port delays which drove the shift in timing of U.S. wholesale shipments from the third to fourth quarter that I mentioned earlier. Despite the unplanned shift of timing of U.S. wholesale shipments, we significantly exceeded our earnings guidance for the third quarter. Notably, the shifted shipments were lower margin season-less goods that we did not use air freight to transport in. Earnings per share was $2.67 compared to $1.32 in the prior year period, beating the top end of our previous guidance by $0.67. The beat was primarily due to business outperformance for approximately $0.50, driven by gross margin and expense improvements. Also included in the beat is an approximately $0.17 favorable impact from taxes due to our mix of earnings. Notably, our EBIT margin continued to be very strong at 11.4% for the quarter, exceeding 2019 pre-pandemic levels driven by continued strength in our international business. Additionally, we made over $100 million of voluntary term loan payments in the third quarter, bringing voluntary payments to over $800 million for the first nine months of 2021, and we repurchased approximately $149 million of common stock and reinstated our cash dividend. Moving onto our outlook, we are providing our 2021 outlook despite the continued significant uncertainty due to the pandemic, including the omicron variant and related supply chain and logistics disruptions globally. We continue to be encouraged by our international businesses, which are expected to continue to exceed pre-pandemic levels in the fourth quarter. We expect North America to continue to face the ongoing challenge of reduced international tourism, which was a source of approximately 30% to 40% of pre-pandemic revenue for the region and higher for Tommy Hilfiger than for Calvin Klein. We are not planning for international tourism to return to any significant levels in the fourth quarter. In addition, North America has been and continues to be the region most challenged by supply chain disruptions, including higher air freight costs and lower than optimal inventory levels on hand in stores. For the full year, we are reaffirming the top end of our revenue guidance range and projecting revenue to grow approximately 27% to 28% as reported and approximately 25% to 26% on a constant currency basis compared to 2020. We expect gross margin will continue to show significant improvement for the remainder of the year due to more full price selling and a favorable shift in regional sales mix compared to the prior year, with our higher margin international businesses making up a larger portion of total revenue. We expect our fourth quarter gross margin rate to be relatively in line with the prior two quarters. We now expect our full year EBIT margin will exceed our 2019 pre-pandemic level and reach nearly 10%; however, our EBIT margin in the fourth quarter is expected to be below 2019 levels and also for the first nine months of 2021, as the fourth quarter is more heavily impacted by incremental air freight as well as planned increases in marketing and other investments. We expect our interest expense to decrease in 2021 to approximately $105 million compared to $116 million in 2020. Our tax rate for the year is estimated at 16% to 17%. For the full year in 2021, we are projecting non-GAAP earnings per share to be approximately $9.25, which is an increase compared to our previous guidance of $8.50 and compares to a loss per share of $1.97 in 2020. The increase versus previous guidance was primarily due to better than anticipated gross margin expansion and operating expense efficiencies worth approximately $0.60, along with an improvement in taxes of approximately $0.15. For the fourth quarter, our revenue is projected to increase 11% to 14% as reported and 16% to 19% on a constant currency basis compared to the prior year. Compared to our fourth quarter previously implied revenue guidance, this reflects the positive impact of the shift in U.S. wholesale shipments from the third quarter into the fourth quarter and a 2% negative impact of foreign currency translation, primarily due to the recent strengthening of the U.S. dollar compared to the euro. The underlying business performance has not changed compared to our previously implied guidance. Fourth quarter non-GAAP earnings per share is expected to be approximately $1.94 compared to a loss per share of $0.38 in the prior year period. Our fourth quarter guidance reflects an incremental $0.10 of expected air freight costs versus our prior expectations. With that, Operator, we would like to open it up to questions.

We will now take our first question from Bob Drbul of Guggenheim. Please go ahead, your line is open.

Hi, good morning. I have two questions. First, can you discuss the price increases you mentioned? Specifically, how have consumers and your wholesale partners reacted to the price hikes you’ve implemented so far or any plans for future increases? Thanks.

Yes, good morning Bob. We definitely are moving into an inflationary period, and coming back to our accelerated recovery priorities where we have leaned in since the beginning of the pandemic on brand relevance, product strength, and we really see the result of that coming through in pricing power, so we see increased AURs, we see increased gross margin rate, so looking forward, Jim can give you a little bit more of the details of what we expect in terms of AUC increases, but we are confident from a product strength perspective that we will continue to drive AUR increases. Then overall, looking at the inflationary environment we’re moving into, we are looking at both pricing power, sourcing mitigation, and we are looking at cost efficiencies overall. Jim?

Yes Bob, just to add to what Stefan alluded to, as we head into spring 2022, some of the cost increases we’re starting to see is about mid-single digits, but we do see great strength in our product, so we’ll be looking to mitigate that through different supply chain initiatives, but also through increasing pricing, particularly in key categories where we see a lot of strength in the business.

Great, thank you. The other question I have is can you talk a little bit about denim trends that you’re seeing within the brands and how you feel you’re positioned in some of the denim cycle commentary that we see out there?

Yes, definitely. We see denim trending up in the market with the consumer. We are excited by that because we have strength in denim in both Tommy and Calvin. It’s in the DNA of the brand. It’s one of those power categories that we are leaning into, so it’s an exciting consumer trend that we are leaning into and you will see that increasingly going forward.

Thank you very much.

Thanks Bob.

We will now move onto our next question from Michael Binetti of Credit Suisse. Please go ahead, your line is open.

Good morning everyone, thank you for the detailed insights and for addressing our questions. I have a brief inquiry regarding the short term. Prior to today's call, we had some implied guidance for the fourth quarter, and you mentioned increased marketing efforts in the latter half, which we were aware of. However, excluding the wholesale shift and foreign exchange impacts, it seems that the underlying sales for the fourth quarter aligned with your expectations, but SG&A appears to have risen slightly more than anticipated for that quarter. Could you clarify if that is accurate and what might have contributed to that increase? Additionally, Stefan, as we discussed throughout the year, we mentioned the potential to realign work streams and shorten product lead times across various brands. Now that we are moving beyond merely managing the impacts of COVID globally, could you provide more insight into the size of the opportunity you perceive there, the current status of these processes, and which significant initiatives we might expect to see as you begin implementing changes that could greatly impact the financials in the coming year? Thank you.

Yes Michael, I’ll start. I’ll take your Q4 question and then turn it over to Stefan. Really in Q4, just start with the revenues. The first thing we did is we narrowed the revenue guidance, and really we increased the bottom end of the range and we reaffirmed at the top end. In Q4 with revenues, the underlying business pretty much held and we were able to cover some weakening of the euro. The euro did weaken against the U.S. dollar, particularly we saw that in the last month. As far as when you get below revenue, really the main change is we had to incur an additional $0.10 - $10 million, $0.10 of air freight costs in Q4, but really everything underlying, we’re still generating very strong gross margins just like in Q3, continuing to gain expense efficiencies. The marketing that I alluded to was always planned to always be very heavily weighted to the second half of the year, and particularly to Q4. We really wanted to connect that spending to some of the consumer moments that we have, particularly Black Friday and Singles Day.

Thank you, Jim. Michael, in response to your product question, we are focusing on several key areas aligned with our accelerated recovery priorities, which will inform our long-term strategy. This involves concentrating on key categories where we can successfully engage with consumers. Within this framework, we will enhance our focus on essential products that are vital to consumers' wardrobes. Every product must serve a purpose, and we will reduce the less productive items. We have made good initial progress in this area. Looking ahead, we see further opportunities to streamline our assortment and realize significant value by planning and purchasing closer to consumer demand.

Okay, thanks. Appreciate it, guys.

We will now move onto our next question from Erin Murphy of Piper Sandler. Please go ahead, your line is open.

Great, thank you. Good morning. My first question is for Stefan. I would love if you could share a little bit more about your outlook for China, and then specifically what’s the current dynamic on the ground there between global versus national brands?

Yes, good morning Erin, and thank you for your question. In Asia, we experienced another strong quarter. Our perspective on the situation is more nuanced due to the various COVID resurgences across different countries in the region. In China, this quarter, we exceeded our expectations, largely due to our focus on Calvin and Tommy and strengthening their connection to consumers, with digital playing a significant role. For instance, during Singles Day, which has evolved into much more than a single day event, we achieved exceptional performance. Digital is crucial as we engage with different consumer moments like Singles Day, and we are concentrating on the major categories that are most relevant. Additionally, the hero products we've developed over the past year are resonating well with Chinese consumers, resulting in increased sell-through rates and higher average unit retail prices.

That’s great to hear. Then maybe just one for Jim and following up on Binetti’s question, if you were to see upside in the fourth quarter relative to your plan, would that come more from sales or the margin front? Thank you so much.

Yes Erin, we see great strength right now in the gross margins. We started the fourth quarter pretty strong. We’re very pleased with our performance on Singles Day and Black Friday on the top line, but our inventories are leaner than we would ultimately like, so we’re seeing real continued strength in AURs, that pricing power that we’re seeing flow through in gross margins. I think the opportunity is even more so on gross margin than it has been in the past.

Great, thank you so much, and happy holidays to you all.

You too, Erin. Thank you.

We will now move onto our next question from Jay Sole of UBS. Please go ahead, your line is open.

Great, thank you so much. I guess I just want to follow up on the gross margin. Within the guidance, do you have a sense of how you feel like the gross margin should land in 4Q, and within that, with the changes in the heritage business in Q3, can you just talk about what impact that had on gross margin and SG&A? Thank you.

Yes, so Jay, in my notes I alluded to our gross margin percent in Q2 was 57.7%, our gross margin in Q3 was 57.7%. Right now, we’re anticipating Q4 to be about the same, so really about three quarters of that sustainable, pretty high gross margin, so we feel pretty good about that. If we talk about heritage, yes, it has helped the gross margins somewhat. The heritage business was a much smaller base, so it’s not moving the PVH needle that much, but it is a slight improvement. But also, just maybe some of the offsets to that improvement in Q3, and particularly in Q4 is the air freight cost, so recall that about $45 million of additional air freight cost, which is all hitting in the second half, so we’ve been able to cover that as well, which would be more impactful than any benefit that we’d get from heritage.

And Jay, what’s exciting from my perspective, from a strategy perspective, is that when we lean into Calvin and Tommy and into product strength and hero products, we see that we are able to drive higher AURs, and that’s a sustainable path. That drives a sustainable path towards increased gross margin rates, so that’s very exciting from my standpoint.

Got it, thank you for that. If I could ask one more, paying down some debt, buying back some stock. What’s the plan for the balance sheet going forward, because the long-term debt levels are back down to near pre-pandemic levels, and there’s still a lot of cash on the balance sheet. What’s the outlook for that?

Yes, we are very satisfied with our liquidity and the strength of our balance sheet. Our primary focus will be to invest in our own operations. That will always take precedence. So far, our debt repayments have exceeded the debt we incurred during the pandemic, allowing us to continue reducing debt. Additionally, we have resumed our share repurchase program, with plans to repurchase approximately $350 million in shares this year. We have also reinstated our cash dividend. Overall, we feel very confident about our balance sheet's strength and how we are effectively managing inventories and converting our working capital into cash.

Got it, thanks so much.

We will now move onto our next question from Brooke Roach of Goldman Sachs. Please go ahead, your line is open.

Great, thank you and good morning. PVH has seen particularly strong profitability in both brands internationally. I was wondering if you could perhaps talk to the drivers of the increases that you’ve seen this year and your outlook for those margins in a perhaps somewhat more inflationary environment where demand and supply are in better alignment going forward.

This quarter, I traveled extensively, visiting over 40 stores across four European countries. It's exciting to witness the continuous focus on consumers and our brand, which is enhancing our brand position and leading to strong product execution and average unit retail outcomes. Our multi-channel approach is effectively engaging consumers. Despite the resurgence of COVID in European markets, we've managed to adapt better than many competitors. The resilience of consumers is apparent, and even with the fourth wave, we observe a trend from past experiences in navigating similar situations. While there is a slight decrease in brick-and-mortar foot traffic, we see an increase in conversion rates in physical stores, and consumers are quickly shifting to digital platforms. Overall, European consumers are gradually returning to pre-COVID shopping behaviors, and we are well-positioned to meet them where they choose to shop. These elements are critical to our recovery priorities across various regions.

Thank you. It sounds like there’s a lot of momentum and confidence in the gross margin and AUR momentum of the brands, driven by your hero product strategy. Perhaps we could pivot a little bit to the SG&A cost structure as you look forward. Can you talk to the puts and takes of this as you look ahead? Where do you see the most leverage on your cost base, and where are the opportunities to optimize that expense structure as you continue to roll out this strategy?

Yes, Brooke, achieving cost efficiencies is a top priority in our recovery plans that Stefan mentioned. We see opportunities everywhere, especially as our international revenues are experiencing significant growth, which could provide real leverage alongside those revenues. We are focused on optimizing expenses and directing our investments towards growth opportunities across both brands and all regions.

I mean, to build on what Jim said, Brooke, it’s about the way we drive cost efficiencies. We start with what it takes to win with the consumer, and the consumer has moved over the last few years, so we need to make sure that we invest in where the consumer is going and driving our accelerated recovery priorities, and then we have to divest to invest. We are increasingly going to lean into cost efficiencies to make sure that we invest enough in where the consumer is going, and that we free up cost efficiencies to do that, and that we flow through some of that to the bottom line.

Thank you so much. I’ll pass it on.

Thank you.

We will now move onto our next question from Kimberly Greenberger of Morgan Stanley. Please go ahead, your line is open.

Great, thank you so much. Good morning. Stefan, I wanted to ask you about the ways in which you’re changing how you work with your wholesale accounts to improve the full price sell through of Calvin and Tommy. Can you just remind us how you’re augmenting your wholesale strategy, both domestically and internationally to help your profit improvement initiatives? Thanks so much.

Yes, thank you Kimberly, definitely. It starts with assortment strength, and it starts with inviting our wholesale partners on the journey for Calvin and Tommy and saying, here are the key categories, here are the hero products, and here is how we bring those to life and the experience. Ecommerce is an increasingly important component, that we bring our brands to life through our wholesale partners increasingly well in ecommerce, and then that we do it as well in brick and mortar, just like we look through continuously to cut the unproductive assortment tail. We also look at the productivity, the door productivity in wholesale partners, but overall it’s a partnership that builds on our core strength and focus areas around assortment and product and pricing power, and then it’s tapping into their strengths. We have deep experience of doing this over time, and it’s just great to see. The digital opportunity for us is big in terms of owned and operated, and it’s equally big when it comes to our wholesale commerce opportunity.

Okay, great. Thanks so much. Just one follow-up on the gross margin, if I could. Could you just quantify for us, Jim, the amount of total air freight in basis points or dollars in gross margin here in the third quarter, and I know that the fourth quarter is coming in $0.10 more freight impact, but if you could just give us that total air freight impact also, either in basis points or dollars, for the fourth quarter that’s embedded in your plan, that would be helpful.

Yes Kimberly, we were pulling out a total of $45 million in air freight this year, especially in the second half, and when you break it down by quarter, it’s almost evenly split, 50/50.

Great, thank you.

Just one thing just to add, during the last quarter, we had called out 35, so we have an additional $10 million now than we thought we would have last quarter.

Very clear. Thanks so much, and good luck.

Thank you.

We will now move onto our next question from Omar Saad of Evercore. Please go ahead, your line is open.

Good morning, happy holidays. I wanted to ask a question on the inventory situation. You mentioned plus-50 in transit, that obviously is an elevated number. Do you have visibility into the timing of the shipments and the receipts and when these goods are going to flow through to the retail, to the consumer, or is there any chance that they are going to come too late and may need markdowns to deal with after the season? Help us understand your visibility into the receipts and the timing of inventory as well.

Yes Omar, so some of the challenges that we saw worsen in October, particularly due to the U.S. port delays which caused a shift of shipments from Q3 into Q4, those goods are out now. We got back in line with them - they went out in November, so we feel pretty good. Inventories are still generally pretty lean, but as we work through the year, it will start to get a little better, still challenged, but as we move through, we should get in a better position. We don’t see things where we would have to have heavy markdowns, because generally we’re lean to begin with and we feel pretty good. Also, that’s why we are deploying so much air freight, we’re pretty much ensuring that the goods are getting here in time for the holidays.

Great, that’s super helpful. Then maybe Stefan, could you talk a little bit about this demand for denim and fashion and broader apparel? Are we at peak levels here, do you think? Do you have any early thoughts on demand levels into 2022? Is there room for your consumers to spend more on Tommy Hilfiger and Calvin Klein?

Thank you Omar. Yes, we are confident in the strength of the consumer and the strength of our brands with that consumer, so. Back to the denim trend, we see that as starting to grow, and denim has always been important to the consumer and we see that trend continuing into 2022.

Thanks, good luck. Look forward to the investor day.

Thank you very much, Omar.

Once again, if you would like to ask a question, that is star followed by one - star, one. We’ll move to our next question from Matthew Boss of JP Morgan. Please go ahead, your line is open.

Great, thanks. Stefan, by region, you mentioned work remaining in North America and you mentioned leaning into this with full force. Could you just elaborate on the unlock opportunity you see in the region, maybe across each brand, and how best to think about the timeline from here?

When we examine North America, it's important to note that around 30 to 40% of our business was previously driven by tourism, and we haven't experienced much tourism for the past year and a half. However, we expect that to return over time. In this quarter, we were also affected by the transition in the U.S. port situation from Q3 to Q4. Despite these macro challenges, we are concentrating on areas we can influence, particularly in winning more with domestic consumers. I'm excited about some positive developments, specifically our strong products. Our pricing power has increased, allowing us to raise prices while reducing discounts. We are observing growth in our key areas and the performance of our leading products. Additionally, we are committed to driving high-quality e-commerce growth. While our recovery priorities remain in place, the macro environment is more challenging due to tourism factors and the port situation in Q3.

Great, and then Jim, just multi-year on sustainability of gross margin as we think about next year, are there any give-backs at all to consider, or should we think about this year’s gross margin as a new foundation to build on from here?

Yes Matt, we’re projecting even with Q4, we’re going to have three quarters in a row of sustainable gross margins at that very high 57% range, so we’re not necessarily giving guidance going out to next year, but we feel pretty good about so far the sustainability of our gross margins.

And the reason, just to build on what Jim just said, Matt, the reason why we feel good about the sustainability of the gross margin is how we execute product strength and pricing power. We see that across both brands and across all regions.

Operator, we’ll have to ask for the next question to be the last question for this call. Thank you.

Thanks, it’s Tracy Kogan filling in for Paul. I had a follow-up on the wholesale business. I was wondering how your partners are reacting to the delays. Have you seen any material increase in cancellations, or are partners really just taking basically whatever inventory they can get at this point? Then I do have one follow-up, thanks.

Yes, I’ll take that, Tracy. We are not seeing any cancels, and one of the things with the delays we had and the shift of our shipments is it was really season-less goods, that we would not deploy air freight in lower margin goods. It got hung up in the ports, but since it’s season-less, it’s out already. We are not seeing cancels.

And we are really in a situation, Tracy, where demand outpaced supply, which is a good place to be.

Mm-hmm. Then my second question was just looking at your business, or your customers internationally versus the U.S., just wondering what the demographics are like of your customers internationally versus in the U.S. - you know, the local customer, obviously, not the tourist.

We have a similar consumer base for Tommy and Calvin worldwide, and I feel encouraged when I visit stores in Europe and North America. Having two of the most iconic brands in our sector and engaging with our consumer gives us a strong opportunity to execute effectively. We aim to enhance the relevance of these brands through product strength, consumer engagement, collaborations, and disciplined channel execution.

Great. Thanks very much.

Well thank you very much, Tracy, and thank you everyone for joining us for this call this morning. I want to wish you all, and we want to wish you all a happy, healthy and safe holiday. Looking forward to catching up again in 2022. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.