How Calvin Klein Navigated through Tough Macro Conditions
The company derived 46% of its operating income from the Calvin Klein business in fiscal 2015 compared to 37% in fiscal 2014.
Calvin Klein: PVH’s most profitable brand
Calvin Klein is currently PVH’s (PVH) most important segment in terms of profitability and growth. The company derived 46% of its operating income from the Calvin Klein business in fiscal 2015 compared to 37% in fiscal 2014. The segment’s share of PVH’s total revenue has risen from 19% in fiscal 2012 to 36% in fiscal 2015.
PVH reports its Calvin Klein business under two segments:
- Calvin Klein North America
- Calvin Klein International
Calvin Klein’s top line performance in fiscal 2015
Calvin Klein emerged as PVH’s strongest segment in fiscal 2015. It continued to display a solid performance despite the unfavorable macroeconomic environment. Calvin Klein saw a 9% year-over-year (or YoY) rise in sales on a constant currency basis, driven by strong momentum in all its segments.
Comparable retail store sales rose 2% for the North America segment and 5% for the International segment. The International segment’s sales growth was driven largely by growth in the European and Chinese markets. In Europe, CK’s business grew across all categories, including jeans, accessories, and underwear. PVH sees Europe as a major growth opportunity for the brand.
Like Tommy Hilfiger, Calvin Klein also faced currency headwinds. However, even after considering foreign exchange impact, this segment registered a 2% revenue rise during fiscal 2015.
A look at the segment’s profitability
The segment’s earnings before interest and tax (EBIT) remained stout and rose 19% on a constant currency basis, driven largely by the strong performances of its European business. Its EBIT growth stood at 8% in fiscal 2015 after including the impact of foreign currency exchange rates.
PVH and other apparel companies Coach (COH), Hanesbrands (HBI), Michael Kors (KORS), and VF Corporation (VFC) are part of the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests a combined 2.4% of its portfolio in them.