# PVH Corp.: Form 10-Q for the period ended Oct 29, 2023 - Company: [PVH Corp.](/companies/pvh.md) (CIK 78239) - Form: 10-Q - Filed: 2023-12-07 - Accepted by EDGAR: Dec 7, 2023, 12:41 ET - Period: 2023-10-29 - Accession: 0000078239-23-000135 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/78239/000007823923000135/pvh-20231029.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/78239/000007823923000135/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2023-10-29. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2023-07-31 to 2023-10-29 | $2.36bn | us-gaap:Revenues | | Revenue | 9 months, 2023-01-30 to 2023-10-29 | $6.73bn | us-gaap:Revenues | | Cost of revenue | 3 months, 2023-07-31 to 2023-10-29 | $1.02bn | us-gaap:CostOfGoodsAndServicesSold | | Cost of revenue | 9 months, 2023-01-30 to 2023-10-29 | $2.87bn | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2023-07-31 to 2023-10-29 | $1.34bn | us-gaap:GrossProfit | | Gross profit | 9 months, 2023-01-30 to 2023-10-29 | $3.86bn | us-gaap:GrossProfit | | Selling, general and administrative | 3 months, 2023-07-31 to 2023-10-29 | $1.12bn | us-gaap:SellingGeneralAndAdministrativeExpense | | Selling, general and administrative | 9 months, 2023-01-30 to 2023-10-29 | $3.33bn | us-gaap:SellingGeneralAndAdministrativeExpense | | Operating income | 3 months, 2023-07-31 to 2023-10-29 | $229.8m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2023-01-30 to 2023-10-29 | $571.9m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2023-07-31 to 2023-10-29 | $24.3m | us-gaap:InterestExpense | | Interest expense | 9 months, 2023-01-30 to 2023-10-29 | $75.5m | us-gaap:InterestExpense | | Income tax | 3 months, 2023-07-31 to 2023-10-29 | $46.0m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2023-01-30 to 2023-10-29 | $112.3m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2023-07-31 to 2023-10-29 | $161.6m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2023-01-30 to 2023-10-29 | $391.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2023-07-31 to 2023-10-29 | $2.66 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2023-01-30 to 2023-10-29 | $6.29 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2023-07-31 to 2023-10-29 | $2.68 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2023-01-30 to 2023-10-29 | $6.35 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2023-07-31 to 2023-10-29 | 60,800,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2023-01-30 to 2023-10-29 | 62,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2023-01-30 to 2023-10-29 | $311.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2023-01-30 to 2023-10-29 | $163.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Share repurchases | 9 months, 2023-01-30 to 2023-10-29 | $286.7m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2023-10-29 | $357.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2023-10-29 | $3.35bn | us-gaap:AssetsCurrent | | Total assets | at 2023-10-29 | $11.17bn | us-gaap:Assets | | Current liabilities | at 2023-10-29 | $2.85bn | us-gaap:LiabilitiesCurrent | | Long-term debt | at 2023-10-29 | $1.57bn | us-gaap:LongTermDebtNoncurrent | | Current portion of debt | at 2023-10-29 | $665.2m | us-gaap:LongTermDebtCurrent | | Short-term borrowings | at 2023-10-29 | $18.0m | us-gaap:ShortTermBorrowings | | Shareholders' equity | at 2023-10-29 | $5.05bn | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 56,841 characters. We aggregate our reportable segments into three main businesses: (i) Tommy Hilfiger, which consists of the businesses we operate under our *TOMMY HILFIGER* trademarks; (ii) Calvin Klein, which consists of the businesses we operate under our *Calvin Klein* trademarks; and (iii) Heritage Brands, which consists of the businesses we operate under our *Warner’s, Olga* and *True&Co.* trademarks, which we owned until November 27, 2023, the *Van Heusen* and *Nike* trademarks, which we license for certain product categories, and other licensed trademarks. References to brand names are to registered and common law trademarks owned by us or licensed to us by third parties and are identified by italicizing the brand name. OVERVIEW The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our consolidated financial statements and the accompanying notes, which are included in the immediately preceding item of this report. We are one of the largest global apparel companies in the world, with a history going back over 140 years. We have been listed on the New York Stock Exchange for over 100 years. We manage a portfolio of iconic brands, including *TOMMY HILFIGER* and *Calvin Klein*, which are owned, *Warner’s, Olga* and *True&Co.,* which we owned until November 27, 2023, *Van Heusen* and *Nike,* which we license for certain product categories, and other owned and licensed brands. We entered into a definitive agreement on November 10, 2023 to sell our Warner’s, Olga and True&Co. businesses to Basic Resources and completed the sale on November 27, 2023 (the “Heritage Brands intimate apparel transaction”). We also license the use of our trademarks to third parties and joint ventures for product categories and in regions where we believe our licensees’ expertise can better serve our brands. Our revenue was $9.0 billion in 2022, of which over 65% was generated outside of the United States. Our global iconic brands, *TOMMY HILFIGER* and *Calvin Klein*, together generated over 90% of our revenue. #### PVH+ Plan At our April 2022 Investor Day, we introduced the PVH+ Plan, our multi-year, strategic plan to drive brand-, digital- and direct-to-consumer-led growth and financial performance for sustainable, long-term profitable growth and value creation. The PVH+ Plan builds on our core strengths and connects *Calvin Klein* and *TOMMY HILFIGER* closer to the consumer than ever before through five key drivers: (1) win with product, (2) win with consumer engagement, (3) win the digitally-led marketplace, (4) develop a demand- and data-driven operating model, and (5) drive efficiencies and invest in growth. These five foundational drivers apply to each of our businesses and are activated in the regions to meet the unique expectations of our consumers around the world. RESULTS OF OPERATIONS #### War in Ukraine and Israel-Hamas War As a result of the war in Ukraine, we announced in March 2022 that we were temporarily closing stores and pausing commercial activities in Russia and Belarus. In the second quarter of 2022, we made the decision to exit from our Russia business, including the closure of our retail stores in Russia and the cessation of our wholesale operations in Russia and Belarus. Additionally, while we have no direct operations in Ukraine, virtually all of our wholesale customers and franchisees in Ukraine have been impacted, which has resulted in a reduction in shipments to these customers and canceled orders. We recorded net pre-tax costs of $43 million in 2022 in connection with our decision to exit from the Russia business, consisting of (i) $44 million of noncash asset impairments, (ii) $5 million of contract termination and other costs and (iii) $2 million of severance, partially offset by (iv) an $8 million gain related to the early termination of certain store lease agreements in Russia. The $50 million of pre-tax costs were incurred in the second quarter of 2022 and the pre-tax gain of $8 million was recorded in the fourth quarter of 2022. Please see Note 15, “Exit Activity Costs,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. The war in Ukraine also led to broader macroeconomic implications, including for a significant portion of 2022, the weakening of the euro against the United States dollar, increases in fuel prices and volatility in the financial markets, as well as a decline in consumer spending. The recent Israel-Hamas war, which began in October 2023, is not expected to have a material impact on our business. Less than 1% of our revenue in 2023 is expected to be generated in Israel, and less than 2% of our revenue in 2023 is expected to be generated in the Middle East, including Israel. There is uncertainty regarding the extent to which these wars and their broader macroeconomic implications, including the potential impacts on the broader European market, will impact our business, financial condition and results of operations for the remainder of 2023. #### Inflationary Pressures Inflationary pressures negatively impacted our revenue and earnings in 2022 and have continued through the first nine months of 2023, including (i) increased labor and product costs and (ii) beginning late in the second quarter of 2022, a slowdown in consumer demand for apparel and related products, as consumers reduced discretionary spend and certain wholesale customers have taken a more cautious approach, particularly in North America and, increasingly as 2023 has progressed, in Europe. We implemented price increases in certain regions and for certain product categories beginning in the first quarter of 2022, and more extensively in the second half of 2022, to mitigate the higher costs. We expect inflationary pressures to continue to negatively impact our revenue and earnings for the remainder of 2023, although to a lesser extent than in 2022, as we are benefiting from the decline in ocean freight rates and raw materials costs in the second half of 2023. #### COVID-19 Pandemic The COVID-19 pandemic had a significant impact on our business, results of operations, financial condition and cash flows from operations during 2022. The pandemic did not have a significant impact on us during the first nine months of 2023 and is not expected to have a significant impact on us for the remainder of the year. Strict lockdowns in China during 2022 resulted in extensive temporary store closures and significant reductions in consumer traffic and purchasing, as well as impacted certain warehouses, which resulted in the temporary pause of deliveries to our wholesale customers and from our digital commerce businesses in the first half of 2022. COVID-related restrictions in China were lifted at the end of the fourth quarter of 2022. In addition, our North America stores have been challenged by the significant decrease in international tourists coming to the United States since the onset of the pandemic. While international tourism levels have continuously improved since 2020, we expect international tourist shopping levels and sales in our stores for the remainder of 2023 will continue to be below 2019 levels. Stores located in international tourist destinations had represented a significant portion of the North America retail business prior to the pandemic. In addition, pandemic-related supply chain and logistics disruptions have impacted our supply chain partners, including third party manufacturers, logistics providers and other vendors, as well as the supply chains of our licensees. The vessel, container and other transportation shortages, labor shortages and port congestion globally, as well as production delays in some of our key sourcing countries, delayed product orders during the first half of 2022, and, in turn, deliveries to our wholesale customers and availability in our stores and for our directly operated digital commerce businesses. These supply chain and logistics disruptions impacted our inventory levels, including in-transit goods, and our sales volumes. We incurred higher air freight and other logistics costs in the first half of 2022 in connection with these disruptions. To mitigate the supply chain and logistics disruptions, we increased our core product inventory levels. These impacts significantly improved in the second half of 2022. #### Outlook Uncertainty due to War and Inflation There continues to be uncertainty in the current macroeconomic environment due to inflationary pressures globally, the war in Ukraine, the Israel-Hamas war and foreign currency volatility. Our 2023 outlook assumes no material worsening of current conditions. Our revenue and earnings for the remainder of 2023 may be subject to significant material change based on changes in these and other factors. #### Operations Overview We generate net sales from (i) the wholesale distribution to traditional retailers (both for stores and digital operations), pure play digital commerce retailers, franchisees, licensees and distributors of branded sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, dress shirts, handbags, accessories, footwear and other related products under owned and licensed trademarks, and (ii) the sale of certain of these products through (a) approximately 1,400 Company-operated free-standing store locations worldwide under our *TOMMY HILFIGER* and *Calvin Klein* trademarks, (b) approximately 1,500 Company-operated shop-in-shop/concession locations worldwide under our *TOMMY HILFIGER* and *Calvin Klein* trademarks, and (c) digital commerce sites worldwide, under our *TOMMY HILFIGER* and *Calvin Klein* trademarks. Additionally, we generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. We manage our operations through our operating divisions, which are presented as the following reportable segments: (i) Tommy Hilfiger North America; (ii) Tommy Hilfiger International; (iii) Calvin Klein North America; (iv) Calvin Klein International; and (v) Heritage Brands Wholesale. The following actions, transactions and events, in addition to the exit from our Russia business discussed above, have impacted our results of operations and the comparability among the periods, including our full year 2023 expectations as compared to the full year 2022, as discussed below: - We completed the sale of our Warner’s, Olga and True&Co. businesses to Basic Resources on November 27, 2023 for $160 million in cash, subject to an adjustment. There is a potential earnout of up to $10 million that we may receive subsequent to the earnout period, based on calendar year 2024 net sales of a portion of the sold businesses. We plan to utilize the net proceeds from the Heritage Brands intimate apparel transaction to repurchase shares of our common stock. We will record a pre-tax net gain of approximately $10 million in the fourth quarter of 2023 in connection with the closing of the Heritage Brands intimate apparel transaction, which includes an estimated gain on the sale, less costs to sell, and severance and other termination benefits associated with the transaction. The pre-tax net gain does not include any potential earnout we may recognize in 2024 subsequent to the earnout period. Please see Note 4, “Assets Held for Sale,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. - We announced in August 2022 plans to reduce people costs in our global offices by approximately 10% by the end of 2023 to drive efficiencies and enable continued strategic investments to fuel growth, including in digital, supply chain and consumer engagement (the “2022 cost savings initiative”), which is expected to result in annual cost savings of over $100 million, net of continued strategic people investments. We recorded pre-tax costs of $20 million during 2022, consisting principally of severance related to initial actions taken under the plans. We recorded pre-tax costs of $58 million during the thirty-nine weeks ended October 29, 2023, consisting principally of severance related to additional actions taken in July and September 2023, and expect to incur approximately $7 million in the fourth quarter of 2023 in connection with the 2022 cost savings initiative, consisting principally of severance. Please see Note 15, “Exit Activity Costs,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. - We recorded a pre-tax noncash goodwill impairment charge of $417 million in the third quarter of 2022 in conjunction with our annual goodwill and other indefinite-lived intangible asset impairment testing. The impairment was non-operational and driven by a significant increase in discount rates as a result of then-current economic conditions. Please see Note 6, “Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements included in Part I Item 1 of this report for further discussion. - We completed the sale of our approximately 8% economic interest in Karl Lagerfeld Holding B.V. (“Karl Lagerfeld”) to a subsidiary of G-III Apparel Group, Ltd. (“G-III”) on May 31, 2022 for approximately $20 million in cash, subject to customary adjustments, of which $19 million was received in the second quarter of 2022 and the remaining $1 million which was previously held in escrow was received in the fourth quarter of 2023 (the “Karl Lagerfeld transaction”). We recorded a pre-tax gain of $16 million in the second quarter of 2022 in connection with the transaction. Please see Note 5, “Investments in Unconsolidated Affiliates,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. We also announced in November 2022 that we extended most of our licensing agreements with G-III for *Calvin Klein* and *TOMMY HILFIGER* in the United States and Canada, largely pertaining to the women’s apparel product categories sold at wholesale in North America. These agreements now have staggered expirations from the end of 2023 through 2027. Upon expiration, we intend to bring most of the licensed product categories in-house and directly operate these businesses. We do not expect the license expirations at the end of 2023 will have a significant impact on our results of operations or financial condition in 2023. Our Tommy Hilfiger and Calvin Klein businesses each have substantial international components that expose us to significant foreign exchange risk. Our Heritage Brands business also has international components but those components are not significant to the business. Our results of operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative period. Accordingly, our results of operations are unfavorably impacted during times of a strengthening United States dollar against the foreign currencies in which we generate significant revenue and earnings and favorably impacted during times of a weakening United States dollar against those currencies. Over 65% of our 2022 revenue was subject to foreign currency translation. The United States dollar strengthened against the euro, which is the foreign currency in which we transact the most business, as well as against most major currencies, during the first nine months of 2022, but then began to weaken in the fourth quarter of 2022. The United States dollar continued to weaken against the euro during the first nine months of 2023. The favorable impact in 2023 from the weakening of the United States dollar against the euro has been partially offset by the recent strengthening of the United States dollar against key currencies in which we transact business in the Asia Pacific region. We currently expect our 2023 revenue and net income to increase by approximately $45 million and $7 million, respectively, due to the impact of foreign currency translation. There also is a transactional impact of foreign exchange on our financial results because inventory typically is purchased in United States dollars by our foreign subsidiaries. Our results of operations will be unfavorably impacted during times of a strengthening United States dollar, as the increased local currency value of inventory results in a higher cost of goods in local currency when the goods are sold, and favorably impacted during times of a weakening United States dollar, as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We use foreign currency forward contracts to hedge against a portion of the exposure related to this transactional impact. We enter into these contracts up to 18 months in advance for a portion of the projected purchases and may enter into incremental contracts leading up to the time the inventory purchases occur. Therefore, the impact of fluctuations of the United States dollar on the cost of inventory purchases covered by these contracts may be realized in our results of operations up to 18 months following their inception, as the underlying inventory hedged by the contracts is sold. We currently expect our 2023 net income to decrease by approximately $75 million as compared to 2022 due to the transactional impact of foreign currency with an expected negative impact to our 2023 gross margin of approximately 100 basis points. We also have exposure to changes in foreign currency exchange rates related to our €1.125 billion aggregate principal amount of senior notes that are held in the United States. The strengthening of the United States dollar against the euro would require us to use a lower amount of our cash flows from operations to pay interest and make long-term debt repayments, whereas the weakening of the United States dollar against the euro would require us to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments. We designated the par value of these senior notes issued by PVH Corp., a U.S.-based entity, as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. In addition, we entered into multiple fixed-to-fixed cross-currency swap contracts in the third quarter of 2023, which, in aggregate, economically convert our $500.0 million principal amount of 4 5/8% senior notes due 2025 from a United States dollar-denominated obligation to a euro-denominated obligation of €457.2 million. As part of these swap contracts, we will receive fixed-rate United States dollar-denominated interest at a weighted average rate of 1.405% and pay fixed-rate euro-denominated interest at a rate of 0%. We also designated these cross-currency swap contracts as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. As a result, the remeasurement of these foreign currency borrowings and cross-currency swap contracts at the end of each period is recorded in equity. Please see Note 10, “Derivative Financial Instruments,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. SEASONALITY Our business generally follows a seasonal pattern. Our wholesale businesses tend to generate higher levels of sales in the first and third quarters, while our retail businesses tend to generate higher levels of sales in the fourth quarter. Royalty, advertising and other revenue tends to be earned somewhat evenly throughout the year, although the third quarter tends to have the highest level of royalty revenue due to higher sales by licensees in advance of the holiday selling season. We expect this seasonal pattern will generally continue. Working capital requirements vary throughout the year to support these seasonal patterns and business trends. Due to the above seasonal factors, our results of operations for the thirteen and thirty-nine weeks ended October 29, 2023 are not necessarily indicative of those for a full fiscal year. #### Thirteen Weeks Ended October 29, 2023 Compared With Thirteen Weeks Ended October 30, 2022 #### Total Revenue Total revenue in the third quarter of 2023 was $2.363 billion as compared to $2.281 billion in the third quarter of the prior year. The increase in revenue of $82 million, or 4%, included a 3% positive impact of foreign currency translation and was due principally to the net effect of the following items: - The addition of an aggregate $43 million of revenue, or a 4% increase compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a positive impact of $43 million, or 4%, related to foreign currency translation. Tommy Hilfiger International segment revenue increased 3% (including a 5% positive foreign currency impact). Revenue in our Tommy Hilfiger North America segment increased 6%. - The net addition of an aggregate $56 million of revenue, or a 6% increase compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments, which included a positive impact of $24 million, or 2%, related to foreign currency translation. Calvin Klein International segment revenue increased 10% (including a 4% positive foreign currency impact). Revenue in our Calvin Klein North America segment decreased 1% driven by a decrease in revenue through the wholesale distribution channel. - The reduction of $17 million of revenue, or an 11% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment. Our revenue through our direct-to-consumer distribution channel in the third quarter of 2023 increased 8%, including a 2% positive foreign currency impact. Sales through our directly operated digital commerce businesses increased 15%, including a 3% positive foreign currency impact. Our sales through digital channels, including the digital businesses of our traditional and pure play wholesale customers and our directly operated digital commerce businesses, was approximately 20% of total revenue. Our revenue through our wholesale distribution channel increased 1% in the third quarter of 2023, inclusive of a 4% positive foreign currency impact. #### Gross Profit Gross profit is calculated as total revenue less cost of goods sold and gross margin is calculated as gross profit divided by total revenue. Included as cost of goods sold are costs associated with the production and procurement of product, such as inbound freight costs, purchasing and receiving costs, and inspection costs. Also included as cost of goods sold are the amounts recognized on foreign currency forward contracts as the underlying inventory hedged by such forward exchange contracts is sold. Warehousing and distribution expenses are included in selling, general and administrative (“SG&A”) expenses. All of our royalty, advertising and other revenue from licensing the use of our trademarks is included in gross profit because there is no cost of goods sold associated with such revenue. As a result, our gross profit may not be comparable to that of other entities. Gross profit in the third quarter of 2023 was $1.339 billion, or 56.7% of total revenue, as compared to $1.274 billion, or 55.9% of total revenue, in the third quarter of the prior year. The 80 basis point increase was primarily driven by (i) lower freight and logistics costs as compared to the prior year period, (ii) the impact of a change in the revenue mix between our International and North America segments, as our International segments’ revenue was a larger proportion and these segments carry higher gross margins, and (iii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion and carries higher gross margins. These increases were partially offset by an approximately 100 basis point decline due to the unfavorable impact of the stronger United States dollar on our international businesses, particularly our European businesses, that purchase inventory in United States dollars, for which they generally enter into foreign currency forward contracts up to 18 months in advance of the related inventory purchases, as the increased local currency value of inventory results in higher cost of goods in local currency when the goods are sold. #### SG&A Expenses SG&A expenses in the third quarter of 2023 were $1.124 billion, or 47.6% of total revenue, as compared to $1.085 billion, or 47.6% of total revenue, in the third quarter of the prior year. SG&A expenses as percentage of revenue were flat compared to the prior year period and included increases resulting from (i) the impact of a change in the revenue mix between our International and North America segments, as our International segments’ revenue was a larger proportion and these segments carry higher SG&A expenses as percentages of total revenue, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion and carries higher SG&A expenses as a percentage of total revenue and (iii) an increase in investments to drive our strategic initiatives, including a nearly 20% increase in marketing. These increases were offset by an approximately 150 basis point favorable impact due to the combination of (i) the 2022 costs savings initiative and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses. #### Goodwill Impairment We recorded a pre-tax noncash goodwill impairment charge of $417 million in the third quarter of 2022 in conjunction with our annual goodwill and other indefinite-lived intangible asset impairment testing. The impairment was non-operational and driven by a significant increase in discount rates, as a result of then-current economic conditions. Please see Note 6, “Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. #### Non-Service Related Pension and Postretirement Income Non-service related pension and postretirement income in the third quarter of 2023 was approximately $500,000 as compared to $3 million in the third quarter of the prior year. Please see Note 7, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. #### Equity in Net Income of Unconsolidated Affiliates The equity in net income of unconsolidated affiliates was $14 million in the third quarter of 2023 as compared to $11 million in the third quarter of the prior year. These amounts relate to our share of income (loss) from (i) our joint venture for the *TOMMY HILFIGER* and *Calvin Klein* brands, and other owned and licensed trademarks in Mexico, (ii) our joint venture for the *TOMMY HILFIGER* and *Calvin Klein* brands in India, (iii) our joint venture for the *TOMMY HILFIGER* brand in Brazil and (iv) our PVH Legwear LLC joint venture for the *TOMMY HILFIGER* and *Calvin Klein* brands and other owned and licensed trademarks in the United States and Canada. Our investments in the joint ventures are being accounted for under the equity method of accounting. #### Interest Expense, Net Interest expense, net increased to $22 million in the third quarter of 2023 from $19 million in the third quarter of the prior year, primarily due to an increase in interest rates as compared to the prior year period. #### Income Taxes The effective income tax rate for the third quarter of 2023 was 22.2% compared to 19.8% in the third quarter of the prior year. The increase in the effective income tax rate was primarily due to a change in the mix of international and domestic earnings. #### Thirty-Nine Weeks Ended October 29, 2023 Compared With Thirty-Nine Weeks Ended October 30, 2022 #### Total Revenue Total revenue in the thirty-nine weeks ended October 29, 2023 was $6.728 billion as compared to $6.536 billion in the thirty-nine week period of the prior year. The increase in revenue of $192 million, or 3%, included a 1% positive impact of foreign currency translation and was due principally to the net effect of the following items: - The addition of an aggregate $157 million of revenue, or a 5% increase compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a positive impact of $33 million, or 1%, related to foreign currency translation. Tommy Hilfiger International segment revenue increased 4% (including a 2% positive foreign currency impact). Revenue in our Tommy Hilfiger North America segment increased 7%. - The net addition of an aggregate $87 million of revenue, or a 3% increase compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments. Calvin Klein International segment revenue increased 9%. Revenue in our Calvin Klein North America segment decreased 7%, as an increase in revenue through its direct-to-consumer distribution channel was more than offset by a decrease in revenue through the wholesale distribution channel. The impact of foreign currency translation on our Calvin Klein segments’ revenue in the period was not significant. - The reduction of $52 million of revenue, or an 11% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment. Our revenue through our direct-to-consumer distribution channel in the thirty-nine weeks ended October 29, 2023 increased 9%. The impact of foreign currency translation on our direct-to-consumer distribution channel revenue in the period was not significant. Sales through our directly operated digital commerce businesses increased 10%. Our sales through digital channels, including the digital businesses of our traditional and pure play wholesale customers and our directly operated digital commerce businesses, was approximately 20% of total revenue. Our revenue through our wholesale distribution channel decreased 1% in the thirty-nine weeks ended October 29, 2023, inclusive of a 1% positive foreign currency impact. We currently expect revenue for the full year 2023 to increase approximately 1% compared to 2022, inclusive of the positive impact of less than 1% related to the 53rd week in 2023 and the negative impact of less than 1% related to the Heritage Brands intimate apparel transaction. We currently expect revenue for the fourth quarter of 2023 to decrease 3% to 4% compared to the prior year period. We expect the benefit of the 53rd week in the fourth quarter of 2023 to mostly offset the revenue reduction from the Heritage Brands intimate apparel transaction. We do not expect foreign currency translation to have a significant impact on our revenue in either of the respective periods. #### Gross Profit Gross profit in the thirty-nine weeks ended October 29, 2023 was $3.862 billion, or 57.4% of total revenue, as compared to $3.732 billion, or 57.1% of total revenue, in the thirty-nine week period of the prior year. The 30 basis point increase was primarily driven by (i) price increases that were implemented in certain regions and for certain product categories during 2022, (ii) lower freight and other logistics costs as compared to the prior year period, (iii) the impact of a change in the revenue mix between our International and North America segments, as our International segments’ revenue was a larger proportion and these segments carry higher gross margins, and (iv) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion and carries higher gross margins. These increases were partly offset by (i) higher product costs as a result of inflationary pressures as compared to the prior year period and (ii) an approximately 120 basis point decline due to the unfavorable impact of the stronger United States dollar on our international businesses, particularly our European businesses, that purchase inventory in United States dollars, for which they generally enter into foreign currency forward contracts up to 18 months in advance of the related inventory purchases, as the increased local currency value of inventory results in higher cost of goods in local currency when the goods are sold. We currently expect that gross margin for the fourth quarter of 2023 will increase by approximately 400 basis points as compared to the fourth quarter of 2022 primarily as a result of (i) an approximately 125 basis point favorable impact due to lower freight and other logistics costs as compared to the prior year, (ii) an approximately 150 basis point favorable impact due to the combination of (a) a change in the revenue mix between our International and North America segments as compared to 2022, as our International segments’ revenue is expected to be a larger proportion in 2023 than in 2022 and generally carries higher gross margins and (b) a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2022, as our direct-to-consumer distribution channel is expected to be a larger proportion in 2023 than in 2022 and generally carries higher gross margins and (iii) an approximately 125 basis point increase due to lower product costs in the fourth quarter as compared to the prior year period. These increases are expected to be partially offset by the approximately 50 basis point decline due to the unfavorable impact of the stronger United States dollar on our international businesses that purchase inventory in United States dollars as discussed. #### SG&A Expenses SG&A expenses in the thirty-nine weeks ended October 29, 2023 were $3.326 billion, or 49.4% of total revenue, as compared to $3.195 billion, or 48.9% of total revenue, in the thirty-nine week period of the prior year. The 50 basis point increase was due to (i) the impact of a change in the revenue mix between our International and North America segments, as our International segments’ revenue was a larger proportion and these segments carry higher SG&A expenses as percentages of total revenue, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion and carries higher SG&A expenses as a percentage of total revenue, (iii) net costs incurred in connection with the 2022 cost savings initiative and (iv) an increase in investments to drive our strategic initiatives, including an increase in marketing. These increases were partially offset by (i) the absence in 2023 of costs incurred in 2022 in connection with the exit from our Russia business primarily consisting of noncash asset impairments and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses. We currently expect that SG&A expenses as a percentage of revenue for the fourth quarter of 2023 will increase approximately 100 basis points as compared to the fourth quarter of 2022. Our expectation for the fourth quarter of 2023 includes increases primarily as a result of (i) the impact of a change in the revenue mix between our International and North America segments as compared to 2022, as our International segments’ revenue are expected to be a larger proportion in 2023 than in 2022 and generally carries higher SG&A expenses as percentages of total revenue and (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2022, as our direct-to-consumer distribution channel is expected to be a larger proportion in 2023 than in 2022 and generally carries higher SG&A expenses as a percentage of total revenue. These increases are expected to be partially offset by the net favorable impact of the 2022 cost savings initiative. #### Goodwill Impairment We recorded pre-tax noncash goodwill impairment charges of $417 million in the thirty-nine weeks ended October 30, 2022 in conjunction with our annual goodwill and other indefinite-lived intangible asset impairment testing in the third quarter of 2022. The impairment was non-operational and driven by a significant increase in discount rates, as a result of then-current economic conditions. Please see Note 6, “Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. #### Non-Service Related Pension and Postretirement Income Non-service related pension and postretirement income in the thirty-nine weeks ended October 29, 2023 was $1 million as compared to $10 million in the thirty-nine week period of the prior year. Non-service related pension and postretirement income (cost) recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions. Differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings, generally in the fourth quarter of the year, which can create volatility in our results of operations. We currently expect that non-service related pension and postretirement income for the full year 2023 will be approximately $2 million. However, our expectation of 2023 non-service related pension and post-retirement income does not include the impact of an actuarial gain or loss. As a result of the recent volatility in the financial markets, there is significant uncertainty with respect to the actuarial gain or loss we may record on our retirement plans in 2023. We may record a significant actuarial gain or loss in 2023 if there is a significant increase or decrease in discount rates, respectively, or if there is a difference between the actual and expected return on plan assets. As such, our actual 2023 non-service related pension and postretirement income may be significantly different than our projections. #### Equity in Net Income of Unconsolidated Affiliates The equity in net income of unconsolidated affiliates was $35 million in the thirty-nine weeks ended October 29, 2023 as compared to $43 million in the thirty-nine week period of the prior year. These amounts relate to our share of income (loss) from our unconsolidated affiliates as described in the thirteen weeks discussion above. The equity in net income for the thirty-nine weeks ended October 29, 2023 decreased as compared to the prior year period primarily due to a $16 million pre-tax net gain recorded in the second quarter of 2022 in connection with the Karl Lagerfeld transaction, partly offset by an increase in income attributable to our joint venture in Mexico and our PVH Legwear LLC joint venture. Our investments in the joint ventures are being accounted for under the equity method of accounting. We currently expect that our equity in net income of unconsolidated affiliates for the full year 2023 will decrease to approximately $45 million as compared to $50 million in 2022 due to the absence in 2023 of the $16 million pre-tax gain that we recorded in the second quarter of 2022 in connection with the Karl Lagerfeld transaction, partly offset by an increase in income attributable to our joint venture in Mexico and our PVH Legwear LLC joint venture. #### Interest Expense, Net Interest expense, net increased to $68 million in the thirty-nine weeks ended October 29, 2023 from $61 million in the thirty-nine week period of the prior year, primarily due to an increase in interest rates as compared to the prior year period. Interest expense, net for the fourth quarter and full year 2023 are currently expected to be approximately $25 million and approximately $93 million, respectively, an increase compared to $22 million and $83 million, respectively, in 2022, primarily due to an increase in interest rates as compared to 2022. #### Income Taxes The effective income tax rate for the thirty-nine weeks ended October 29, 2023 was 22.3% compared to 45.1% in the thirty-nine week period of the prior year. The decrease in the effective income tax rate was primarily due to (i) the impact of the $417 million noncash, non-deductible goodwill impairment charge recorded during the third quarter of 2022, which resulted in a pre-tax loss with no tax benefit and was factored into our annualized effective tax rate, and (ii) a change in the mix of international and domestic earnings. We currently expect that our effective income tax rate for both the fourth quarter and full year 2023 will be approximately 22%. We file income tax returns in more than 40 international jurisdictions each year. Our tax rate is affected by many factors, including the mix of international and domestic pre-tax earnings, discrete events arising from specific transactions and new regulations, as well as audits by tax authorities and the receipt of new information, any of which can cause us to change our estimate for uncertain tax positions. LIQUIDITY AND CAPITAL RESOURCES ### Cash Flow Summary and Trends Cash and cash equivalents at October 29, 2023 was $358 million, a decrease of $193 million from the $551 million at January 29, 2023. The change in cash and cash equivalents included the impact of $266 million of completed common stock repurchases under the stock repurchase program. We ended the third quarter of 2023 with approximately $1.4 billion of borrowing capacity available under our various debt facilities. The seasonality of our business results in significant fluctuations in our cash balance between fiscal year end and subsequent interim periods due, in part, to the timing of inventory purchases and peak sales periods. Cash flow for the full year 2023 will be impacted by various factors, including, as discussed further below in this “Liquidity and Capital Resources” section, (i) mandatory long-term debt repayments of approximately $112 million, subject to exchange rate fluctuations, (ii) the proceeds from the sale of our Warner’s, Olga and True&Co. businesses, which closed on November 27, 2023, for $160 million in cash, and (iii) expected common stock repurchases under the stock repurchase program of approximately $550 million. The planned common stock repurchases include an increase of $150 million as compared to prior expectations, utilizing the net proceeds from the Heritage Brands intimate apparel transaction. As of October 29, 2023, $259 million of cash and cash equivalents was held by international subsidiaries. Our intent is to reinvest indefinitely substantially all of our historical earnings in foreign subsidiaries outside of the United States in jurisdictions in which we would expect to incur material tax costs upon distribution of such amounts. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated due to the complexities associated with the hypothetical calculation. ### Operations Cash provided by operating activities was $312 million in the thirty-nine weeks ended October 29, 2023 compared to $276 million of cash used by operating activities in the thirty-nine weeks ended October 30, 2022. The increase in cash provided by operating activities as compared to the prior year period was primarily driven by changes in our working capital, including changes in inventories net of the related change in payables, primarily as a result of (a) a reduction in inventories in the current year period from the elevated levels of inventory we experienced in the second half of 2022 and (b) an increase in inventories during the prior year period as we were building back from lean inventory levels in 2021. Our cash flows from operations have been impacted by supply chain and logistics disruptions and have been and may continue to be impacted by lower consumer demand as a result of inflationary pressures, particularly in North America and to a lesser extent in Europe. In an effort to mitigate these impacts, we have been and continue to be focused on working capital management. ### Supply Chain Finance Program We have a voluntary supply chain finance program (the “SCF program”) administered through a third party platform that provides our inventory suppliers with the opportunity to sell their receivables due from us to participating financial institutions in advance of the invoice due date, at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreements between the suppliers and the financial institutions and have no economic interest in a supplier’s decision to sell a receivable. Our payment obligations, including the amounts due and payment terms, which generally do not exceed 90 days, are not impacted by suppliers’ participation in the SCF program. Please see Note 19, “Other Comments,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion of our SCF program. ### Investments in Unconsolidated Affiliates We received dividends of $30 million and $16 million from our investments in unconsolidated affiliates during the thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively. These dividends are included in our net cash provided (used) by operating activities in our Consolidated Statements of Cash Flows for the respective period. ### Heritage Brands Intimate Apparel Sale We entered into a definitive agreement on November 10, 2023 to sell our Warner’s, Olga and True&Co. businesses to Basic Resources for $160 million in cash, subject to adjustment, and subsequently completed the sale on November 27, 2023. There is a potential earnout of up to $10 million that we may receive subsequent to the earnout period, based on calendar year 2024 net sales of a portion of the sold businesses. Please see Note 4, “Assets Held for Sale,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. ### Karl Lagerfeld Transaction We completed the sale of our approximately 8% economic interest in Karl Lagerfeld to a subsidiary of G-III on May 31, 2022 for $20 million in cash, subject to customary adjustments, of which $19 million was received in the second quarter of 2022 and the remaining $1 million which was previously held in escrow was received in the fourth quarter of 2023. Please see Note 5, “Investments in Unconsolidated Affiliates,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. ### Capital Expenditures Our capital expenditures in the thirty-nine weeks ended October 29, 2023 were $163 million compared to $195 million in the thirty-nine weeks ended October 30, 2022. We currently expect that capital expenditures for the full year 2023 will be approximately $250 million as compared to $290 million in 2022 and will primarily consist of (i) investments in (a) new stores and store renovations and (b) our information technology infrastructure worldwide, including information security, (ii) upgrades and enhancements to platforms and systems worldwide, including our digital commerce platforms, and (iii) enhancements to our warehouse and distribution network in Europe and North America. ### Dividends Cash dividends paid on our common stock totaled $7 million and $8 million during the thirty-nine weeks ended October 29, 2023 and October 30, 2022, respectively. We currently project that cash dividends paid on our common stock in 2023 will be approximately $9 million based on our current dividend rate, the number of shares of our common stock outstanding as of October 29, 2023, our estimate of stock to be issued during 2023 under our stock incentive plans and our estimate of stock repurchases for the remainder of 2023. ### Acquisition of Treasury Shares The Board of Directors has authorized over time beginning in 2015 an aggregate $3.0 billion stock repurchase program through June 3, 2026. Repurchases under the program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as we deem appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, trading restrictions under our insider trading policy and other relevant factors. The program may be modified by the Board of Directors, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice. Beginning January 1, 2023, our share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act. During the thirty-nine weeks ended October 30, 2022, we purchased 5.1 million shares of our common stock under the program in open market transactions for $326 million. During the thirty-nine weeks ended October 29, 2023, we purchased 3.2 million shares of our common stock under the program in open market transactions for $268 million, excluding excise taxes of $2 million. Purchases of $6 million that were accrued for in our Consolidated Balance Sheet as of January 30, 2022 were paid in the first quarter of 2022. Purchases of $2 million were accrued for in our Consolidated Balance Sheet as of October 29, 2023. As of October 29, 2023, the repurchased shares were held as treasury stock and $555 million of the authorization remained available for future share repurchases, excluding excise taxes, as the excise taxes do not reduce the authorized amount remaining. We currently expect common stock repurchases under the stock repurchase program of approximately $550 million for the full year 2023, which includes an increase of $150 million as compared to prior expectations, utilizing the net proceeds from the Heritage Brands intimate apparel transaction. Treasury stock activity also includes shares that were withheld principally in conjunction with the settlement of restricted stock units and performance share units to satisfy tax withholding requirements. ### Financing Arrangements Our capital structure was as follows: *(In millions)* | | 10/29/23 | 1/29/23 | 10/30/22 | | --- | ---: | ---: | ---: | | Short-term borrowings | $18 | $46 | $98 | | Current portion of long-term debt | 665 | 112 | 37 | | Finance lease obligations | 10 | 12 | 10 | | Long-term debt | 1,571 | 2,177 | 2,109 | | Stockholders’ equity | 5,054 | 5,013 | 4,823 | In addition, we had $358 million, $551 million and $457 million of cash and cash equivalents as of October 29, 2023, January 29, 2023 and October 30, 2022, respectively. We expect to make long-term debt repayments of approximately $112 million during 2023, which includes $100 million of debentures that were repaid on November 15, 2023 at maturity. #### Short-Term Borrowings We have the ability to draw revolving borrowings under the senior unsecured credit facilities discussed below in the section entitled “2022 Senior Unsecured Credit Facilities.” We had no revolving borrowings outstanding under these facilities as of October 29, 2023. Additionally, we have the ability to borrow under short-term lines of credit, overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies. These facilities provided for borrowings of up to $207 million based on exchange rates in effect on October 29, 2023 and are utilized primarily to fund working capital needs. We had $18 million outstanding under these facilities as of October 29, 2023. The weighted average interest rate on funds borrowed as of October 29, 2023 was 0.25%. #### Commercial Paper We have the ability to issue unsecured commercial paper notes with maturities that vary but do not exceed 397 days from the date of issuance primarily to fund working capital needs. We had no borrowings outstanding under the commercial paper note program as of October 29, 2023. #### Finance Lease Obligations Our cash payments for finance lease liabilities totaled $3 million in each of the thirty-nine weeks ended October 29, 2023 and October 30, 2022. #### 2022 Senior Unsecured Credit Facilities On December 9, 2022, we entered into new senior unsecured credit facilities (the “2022 facilities”), the proceeds of which, along with cash on hand, were used to repay all of the outstanding borrowings under the 2019 facilities (as defined below), as well as the related debt issuance costs. The 2022 facilities consist of (a) a €441 million euro-denominated Term Loan A facility (the “Euro TLA facility”), (b) a $1.150 billion United States dollar-denominated multicurrency revolving credit facility (the “multicurrency revolving credit facility”), which is available in (i) United States dollars, (ii) Australian dollars (limited to A$50 million), (iii) Canadian dollars (limited to C$70 million), or (iv) euros, yen, pounds sterling, Swiss francs or other agreed foreign currencies (limited to €250 million), and (c) a $50 million United States dollar-denominated revolving credit facility available in United States dollars or Hong Kong dollars (together with the multicurrency revolving credit facility, the “revolving credit facilities”). The 2022 facilities are due on December 9, 2027. We had loans outstanding of $455 million, net of debt issuance costs and based on applicable exchange rates, under the Euro TLA facility as of October 29, 2023. We made payments of $9 million on our term loan under the 2022 facilities during the thirty-nine weeks ended October 29, 2023. We made payments of $23 million on our term loan under the 2019 facilities during the thirty-nine weeks ended October 30, 2022. #### 2019 Senior Unsecured Credit Facilities On April 29, 2019, we entered into senior unsecured credit facilities (as amended, the “2019 facilities”). We replaced the 2019 facilities with the 2022 facilities on December 9, 2022 as discussed above in the section entitled “2022 Senior Unsecured Credit Facilities.” The 2019 facilities included a €500 million euro-denominated Term Loan A facility, of which €441 million was outstanding as of the date it was replaced, and senior unsecured revolving credit facilities. Our financing arrangements contain financial and non-financial covenants and customary events of default. As of October 29, 2023, we were in compliance with all applicable financial and non-financial covenants under our financing arrangements. As of October 29, 2023, our issuer credit was rated BBB- by Standard & Poor’s with a positive outlook and our corporate credit was rated Baa3 by Moody’s with a stable outlook, and our commercial paper was rated A-3 by Standard & Poor’s and P-3 by Moody’s. In assessing our credit strength, we believe that both Standard & Poor’s and Moody’s considered, among other things, our capital structure and financial policies, our consolidated balance sheet, our historical acquisition activity and other financial information, as well as industry and other qualitative factors. Please see Note 8, “Debt,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for a schedule of mandatory long-term debt repayments for the remainder of 2023 through 2028. Please see Note 8, “Debt,” in the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended January 29, 2023 for further discussion of our debt. CRITICAL ACCOUNTING POLICIES Our consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Our significant accounting policies are outlined in Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended January 29, 2023. During the thirty-nine weeks ended October 29, 2023, there were no significant changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the year ended January 29, 2023. ## Market risk As filed, 9,318 characters. Financial instruments held by us as of October 29, 2023 primarily include cash and cash equivalents, short-term borrowings, long-term debt, foreign currency forward contracts and cross-currency swap contracts. Note 11, “Fair Value Measurements,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report outlines the fair value of our financial instruments as of October 29, 2023. Cash and cash equivalents held by us are affected by short-term interest rates. Given our balance of cash and cash equivalents at October 29, 2023, the effect of a 10 basis point change in short-term interest rates on our interest income would be approximately $0.4 million annually. Borrowings under the 2022 facilities bear interest at a rate equal to an applicable margin plus a variable rate. As such, the 2022 facilities expose us to market risk for changes in interest rates. As of October 29, 2023, approximately 80% of our long-term debt was at a fixed interest rate, with the remaining (euro-denominated) balance at a variable interest rate. Interest on the euro-denominated debt is subject to change based on fluctuations in the one-month EURIBOR. The effect of a 10 basis point change in the current one-month EURIBOR on our variable interest expense would be approximately $0.5 million, annually. Please see “Liquidity and Capital Resources” in the Management’s Discussion and Analysis section included in Part I, Item 2 of this report for further discussion of our credit facilities. Our Tommy Hilfiger and Calvin Klein businesses each have substantial international components that expose us to significant foreign exchange risk. Our Heritage Brands business also has international components but those components are not significant to the business. Over 65% of our $9.0 billion of revenue in 2022 was generated outside of the United States. Changes in exchange rates between the United States dollar and other currencies can impact our financial results in two ways: a translational impact and a transactional impact. The translational impact refers to the impact that changes in exchange rates can have on our results of operations and financial position. The functional currencies of our foreign subsidiaries are generally the applicable local currencies. Our consolidated financial statements are presented in United States dollars. The results of operations in local foreign currencies are translated into United States dollars using an average exchange rate over the representative period and the assets and liabilities in local foreign currencies are translated into United States dollars using the closing exchange rate at the balance sheet date. Foreign exchange differences that arise from the translation of our foreign subsidiaries’ assets and liabilities into United States dollars are recorded as foreign currency translation adjustments in other comprehensive (loss) income. Accordingly, our results of operations and other comprehensive (loss) income will be unfavorably impacted during times of a strengthening United States dollar, particularly against the euro, the Japanese yen, the Korean won, the British pound sterling, the Australian dollar, the Canadian dollar and the Chinese yuan renminbi, and favorably impacted during times of a weakening United States dollar against those currencies. We currently expect our 2023 revenue and net income to increase by approximately $45 million and $7 million, respectively, due to the impact of foreign currency translation. During the thirty-nine weeks ended October 29, 2023, we recognized unfavorable foreign currency translation adjustments of $150 million within other comprehensive (loss) income principally driven by a strengthening of the United States dollar against the euro of 3% since January 29, 2023, and a strengthening of the United States dollar against certain currencies in the Asia-Pacific region (primarily the strengthening of the United States dollar against both the Chinese yuan renminbi of 7% and the Australian dollar of 11% since January 29, 2023). Our foreign currency translation adjustments recorded in other comprehensive (loss) income are significantly impacted by the substantial amount of goodwill and other intangible assets denominated in the euro, which represented 40% of our $5.4 billion total goodwill and other intangible assets as of October 29, 2023. This translational impact was partially mitigated by the change in the fair value of our net investment hedges discussed below. A transactional impact on financial results is common for apparel companies operating outside the United States that purchase goods in United States dollars, as is the case with most of our foreign operations. Our results of operations will be unfavorably impacted during times of a strengthening United States dollar, as the increased local currency value of inventory results in a higher cost of goods in local currency when the goods are sold, and favorably impacted during times of a weakening United States dollar, as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We also have exposure to changes in foreign currency exchange rates related to certain intercompany transactions and SG&A expenses. We currently use and plan to continue to use foreign currency forward contracts or other derivative instruments to mitigate the cash flow or market value risks associated with these inventory and intercompany transactions, but we are unable to entirely eliminate these risks. We enter into foreign currency forward contracts pertaining to United States dollar inventory purchases by foreign subsidiaries up to 18 months in advance for a portion of the projected purchases and may enter into incremental contracts leading up to the time the inventory purchases occur. We currently expect our 2023 net income to decrease by approximately $75 million as compared to 2022 due to the transactional impact of foreign currency with an expected negative impact to our 2023 gross margin of approximately 100 basis points. Given our foreign currency forward contracts outstanding at October 29, 2023, the effect of a 10% change in foreign currency exchange rates against the United States dollar would result in a change in the fair value of these contracts of approximately $100 million. Any change in the fair value of these contracts would be substantially offset by a change in the fair value of the underlying hedged items. In order to mitigate a portion of our exposure to changes in foreign currency exchange rates related to the value of our investments in foreign subsidiaries denominated in the euro, we use both non-derivative instruments (the par value of certain of our foreign-denominated debt) and derivative instruments (cross-currency swap contracts), which we designate as net investment hedges. We designated the par value of our €1.125 billion aggregate principal amount of senior notes issued by PVH Corp., a U.S.-based entity, as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. In addition, we entered into multiple receive fixed-rate United States dollar-denominated interest and pay fixed-rate euro-denominated interest cross-currency swap contracts in the third quarter of 2023, which we also designated as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. Please see Note 10, “Derivative Financial Instruments,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. The effect of a 10% change in the euro against the United States dollar would result in a change in the fair value of the net investment hedges of approximately $165 million. Any change in the fair value of the net investment hedges would be more than offset by a change in the value of our investments in certain of our European subsidiaries. Additionally, during times of a strengthening United States dollar against the euro, we would be required to use a lower amount of our cash flows from operations to pay interest and make long-term debt repayments on our euro-denominated senior notes and to settle our cross-currency swap contracts, whereas during times of a weakening United States dollar against the euro, we would be required to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments on these notes and to settle our cross-currency swap contracts. Included in the calculations of expense and liabilities for our pension plans are various assumptions, including return on assets, discount rates, mortality rates and future compensation increases. Actual results could differ from these assumptions, which would require adjustments to our balance sheet and could result in volatility in our future pension expense. Holding all other assumptions constant, a 1% change in the assumed rate of return on assets would result in a change to 2023 net benefit cost related to the pension plans of approximately $5 million. Likewise, a 0.25% change in the assumed discount rate would result in a change to 2023 net benefit cost of approximately $23 million. ## Controls and procedures As filed, 3,163 characters. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are currently undertaking a major multi-year SAP S/4 implementation to upgrade our platforms and systems worldwide. The implementation is occurring in phases over multiple years. We successfully launched the Global Finance functionality on the SAP S/4 platform in Asia and North America in the first quarter of 2020 and the commercial functionality on the SAP S/4 platform for certain businesses in North America in the third quarter of 2021 and for certain businesses in Asia in the first and third quarters of 2023. As a result of this multi-year implementation, we have made certain changes to our processes and procedures, including as a result of the functionality launched to date, which have resulted in changes to our internal control over financial reporting. However, these changes were not material. We expect to continue to make changes as we launch the commercial functionality for additional businesses in future periods. While we expect this implementation to strengthen our internal control over financial reporting by automating certain manual processes and standardizing business processes and reporting across our organization, we will continue to evaluate and monitor our internal control over financial reporting for material changes as processes and procedures in the affected areas evolve. For a discussion of risks related to the implementation of new systems and hardware, please see our Information Technology risk factor “*We rely significantly on information technology. Our business and reputation could be adversely impacted if our computer systems, or systems of our business partners and service providers, are disrupted or cease to operate effectively or if we or they are subject to a data security or privacy breach”* in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended January 29, 2023. ## Risk factors As filed, 343 characters. Please refer to Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 29, 2023 for a description of certain significant risks and uncertainties to which our business, financial condition and results of operations are subject. There have been no material changes to these risk factors as of October 29, 2023. Filed Dec 7, 2023. Source: SEC EDGAR, the filing index for accession 0000078239-23-000135. Last ingested by Listed: Nov 2, 2026, 17:52 ET. No prices; not investment advice.