Good day, and welcome to the PVH Third Quarter 2019 Earnings Call. Today's call is being recorded. At this time, I would like to turn the conference over to Dana Pearlman. Please go ahead, ma'am.
Thank you, operator. Good morning, everyone, and welcome to the PVH Corp. 3rd Quarter 2019 Earnings Conference Call. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise transmitted without PVH's written permission.
Your participation in the question and answer session constitutes your consent to having anything you say appear on any transcript or replay of this call. The information being made available includes forward looking statements that reflect PVH's view as of November 25, 2019, of future events and financial performance. These statements are subject to risks and uncertainties indicated 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. Therefore, the company's future results of operations could differ materially from historical results or current expectations.
PVH does not undertake any obligation to update publicly any forward looking statement, including without limitation any estimate regarding revenue or earnings. Generally, the financial information and guidance provided is on a non GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's Q3 2019 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8 ks furnished to the SEC in connection with the release. At this time, I'm pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH.
Thank you, Dana. Good morning. Joining me on the call is Mike Schaeffer, our Chief Operating Officer and Chief Financial Officer Dana Perelman, our Treasurer and Senior Vice President of Business Development and Investor Relationships. Our President, Stefan Lawson, is traveling and visiting some of our international locations and will be joining us on our Q4 call. I'm pleased to report that PVH posted strong third quarter results, especially in light of the challenging and volatile global backdrop.
We reported earnings per share of $3.10 which exceeded the high end of our previous guidance by $0.10 despite the higher than planned interest and taxes of approximately $0.10 per share. This outperformance was principally driven by our European businesses and better than planned performance in our Asia Pacific businesses. Revenues rose 4% on a constant currency basis, which also exceeded our previous guidance. Although we are raising our annual earnings guidance for the year, we continue to take a conservative approach to planning the 4th quarter holiday season. Our sales and earnings guidance assumes a competitive and promotional macro holiday environment, and we expect continued headwinds from uncertainty surrounding trade and tariffs.
Before I go into the specific brand details, I'd like to provide a few key things from the quarter. First, beginning with our performance by region. Our European businesses continued to post strong results despite the macro situation and uncertainty around Brexit. Tommy Hilfiger and Calvin Klein are outperforming their competition, demonstrating strong performance across the vast majority of markets in Europe. Both brands are resonating with consumers and our 4 holiday product is experiencing strong sell throughs.
We believe that these favorable trends should continue as we move through the Q4. Moving on to the U. S. Business. As many of our peers and key customers have indicated, the U.
S. Market was challenging during the Q3. During the Q3, we saw traffic under pressure with no change to the soft international tourism trends. And we've also seen a highly promotional environment which pressured margins. We believe the increasing focus on inventory turns and the cautious stance by our key retail partners on spring 2020 open to buy levels will continue in the U.
S. Market. Finally, in Asia, we continue to see volatility in the Greater China region, driven by ongoing protests in Hong Kong, the continued U. S.-China trade tensions and a stronger U. S.
Dollar. Our teams continue to be nimble and react to emerging business trends, especially in Hong Kong as the business disruption has gotten worse over the last few months. As we turn to November, I'm pleased to report that we did have a strong 11/11 Singles Day in China and we are seeing improved sales trends across Mainland China. We have great confidence in the underlying power of Calvin Klein and Tommy Hilfiger and believe we are positioning our businesses to see succeed in this ever changing consumer landscape. Looking at the business today and where we believe the company's opportunities continue to be, PVH is well positioned to capitalize upon our targeted purposeful investments.
We are dedicated to ensuring our brands remain authentic to their core DNA with a clear purpose to connect with consumers as consumers are increasingly focused on purchasing brands that connect with their core values. We continue to progress on our consumer data journey to learn and connect more with our consumers and leveraging these insights to power our marketing and product decisions. We believe this will allow us to better deliver unique consumer shopping experiences with the goal of improving our sales and margins and providing a more seamless consumer experience. Additionally, our investments in digital from our e commerce sites to mobile platform and incorporating digital elements into our stores remain a priority. Today, digital sales continue to track at over 10% percent of our total revenues and we continue to see robust online growth with sales growth exceeding 20% in our owned and operated businesses during the quarter.
Looking ahead, we remain committed to seeking and achieving efficiencies across the business from our supply chain, including our design and go to market processes, from warehousing and distribution to optimizing our global retail footprint and our operating models around the world. In summary, we are focused on executing against our strategic priorities, which over the long term will drive stronger brand loyalty, capture the hearts of consumer and deliver sustainable sales and profitability. Let me now move on to the brand results and I'll begin with Tommy Hilfiger. We continue to be extremely pleased with how strong our Tommy business brand is performing. In particular, the brand is experiencing outstanding traction globally as we deepen our connections with our core Tommy consumer, while at the same time converting the next generation of consumers.
The offering of both our Tommy Hilfiger and our Tommy Jeans lifestyles really allow us to capture and target the full spectrum of consumers out there and make them a part of the brand. We see strong growth across our sportswear categories as well as through our global growth categories such as jeans, footwear and accessories. During the quarter, we continued to embrace our global and local ambassadors with exciting consumer activations to drive brand heat. Our collaborative collection with Lewis Hamilton for fall 2019 has proven to be the most successful commercial collaboration to date, debuting at a 1 night experiential event in Milan, which has generated strong sell throughs and earned media value versus spring 2019. The successful launch of the fall 2019 Tommy Hilfiger collection in China with brand ambassador, Shang Yu, which was amplified on China Tmall single day sales, has outperformed all our sales plan.
As we look into holiday in spring 2020, we are excited about the activations ahead of us, which will leverage local ambassadors and influences in key markets to further create more unique engagement and differentiated Tommy experiences for consumers. Moving to the business, Tommy's revenues increased 10% in the quarter and 12% on a constant currency basis, with earnings flattish or up 3% on a constant currency basis, driven primarily by outperformance in Europe. Internationally, revenues rose 20% on a constant currency basis with retail comp sales rising 8%. International revenue growth was primarily driven by outperformance experienced in Europe as well as the addition of revenues resulting from the acquisitions of our Australia and Central and Southern Asia Tommy businesses. We continue to be extremely pleased with Tommy Europe's business, which was the driver of double digit international revenue growth.
Significant growth continues across all channels of distributions in key markets, highlighting the market share gains we have been able to deliver. Fall 2019 sell throughs continue to be very healthy, and we have seen retailers continue to pull orders forward, which we believe bodes well for our full 2020 order books, where early indications are quite positive. As a reminder, spring summer 2020 order books are up 12% over the prior year. In Asia, our Tommy Japan and Australia businesses continue to experience strong performance amid a favorable consumer backdrop, while pressure in the Greater China region persists as a result of the protests in Hong Kong and the U. S.-China trade tensions.
Moving on to North America, revenues were flat and margins were also under pressure, down 5.90 basis points. While our wholesale trends continue to be strong despite the tough North America department store landscape, we experienced continued softness in our retail stores as comparable store sales declined 5%. As many retailers have commented over the last few weeks, there were weak traffic trends across retail during the quarter, which was largely driven by lower levels of international tourists coming to the U. S. These factors in fact led to higher promotional activity than we planned with pressured margins.
We are planning for these pressures to continue throughout the Q4. Ending with licensing, this continues to be a very positive story for us across the majority of our businesses, demonstrating that Tommy Hilfiger brand is extremely healthy. In particular, we continue to be very pleased with the performance of our North America women's sportswear business under G3, which is experiencing strong growth and excellent sell throughs. Moving to Calvin Klein. During the quarter, I'm pleased to report that we saw an uptick in the Calvin Klein branded engagement and awareness as it remains in the top ten to earn media value against its competitive set, demonstrating the health of the brand.
As important as consumer engagement is for the health of the brand, I'm pleased to see that we are experiencing healthy selfies for our fall in our core Go Forward Denim, our core men's underwear and women's intimate franchises as well as in accessories. In October, Calvin Klein celebrated 50 years of self expression with the CK50 collection, a special capsule of iconic styles featuring Justin Bieber back in his Calvins, this time alongside his wife Hailey Bieber, which marked the couple's 1st marketing campaign together. The collection was celebrated globally with events in Brazil, Mexico and Peru and activations across Asia and Europe. And we saw strong success as the product canceling and campaign resonated with our consumer base, delivering strong engagement and earned media value results. Overall, our teams are delivering targeted consumer experience, not only to deliver better engagement, but also to drive sales conversion.
One recent example was our event in Berlin, which focused on amplifying the brand engagement in our largest European market and support hero product stories for fall with campaign star Hailey Bieber, which generated celebrity, influencer and product content across Europe. Additionally, we are very excited about the opening of our new multi brand lifestyle store in Paris, which will have a soft opening in December. Finally, as we look to catering more unique products and consumer experiences in our Asia region, we continue to work with Le Zhang as our brand ambassador and are launching our capsule collection celebrating Chinese New Year in Q4, which will offer products from Calvin Klein underwear, Calvin Klein jeans and Calvin Klein performance. From a business perspective, Calvin Klein increased revenues 3% on a constant currency basis in the quarter and reported earnings increased 7% to $129,000,000 driven by strong margins in North America, partially offset by continued weakness in the Greater China business. By region, Calvin Klein International revenues increased 7% and international store comps declined 3%.
Calvin Klein Europe saw an improved momentum in the business during the Q3 as strong year over year growth was demonstrated across all channels and across the majority of product offerings. Specifically, as new fall product hit store hit the stores, we experienced better sell through in our key categories, including in jeans, accessories and underwear. As a reminder, our spring 2020 order books are up 12% and we are getting early indications for fall 2020, which are quite positive, demonstrating the health of the brand in the market. So as those Calvin Klein lifestyle is increasingly resonating with the European consumer, it reinforces our confidence in the long term growth opportunity for the brand throughout Europe. Moving on to Asia, we continue to experience weakness in traffic trends in our brick and mortar stores in the Greater China region as the business disruptions caused by the ongoing protests in Hong Kong and the U.
S.-China trade tensions continue to impact business. These declines were partially offset by favorable results across our digital businesses and the other major markets throughout Asia. As a reminder, Calvin Klein has a significantly larger business presence in Hong Kong than most of our competitors. Moving to North America, revenues declined 5% as planned, largely driven by our decision to license the women's jeans business to G3. Despite the challenging North America environment, our Calvin Klein North America business posted a healthy increase in earnings, driven by significantly higher gross margins than last year.
At wholesale, we continue to see positive results from the digital businesses. In our retail business, comps were down 4% as we continue to experience the weakness in traffic and consumer spending trends, especially in our international tourist locations. We saw significant margin improvement compared to last year, driven by lower clearance markdowns. We continue to be focused on enhancing our store productivity as well as our merchandising efforts, which we believe will pay dividends as we move forward. Finally, our heritage businesses had a difficult quarter.
Revenues for the quarter were down 13% with comparable store sales down 2%. EBIT margins remained under pressure, down 180 basis points as the wholesale and retail businesses experienced gross margin pressure attributable to the weakness in the overall North America retail landscape. Our mass and pure play businesses continued to outperform our department store and mid tier accounts in line with industry trends. As we look to 2020, we continue to seek ways to optimize and streamline the Heritage Brands business to generate enhanced returns. In our wholesale business, we are looking at which brands serve the business best and are reevaluating the licensed brands in our dress furnishings and sportswear businesses.
In retail, we continue to be keenly focused how we can further rationalize our store portfolio as we move into 2020. Finally, as we look to the Q4 and as we are reporting before the Thanksgiving holiday, I can only comment on trends for the 1st 2 weeks of November, which have started off somewhat ahead of plans. But given the calendar shift, business is difficult to read. Although I am cautiously optimistic about the holiday season, we have taken a conservative approach to projecting our 4th quarter results. And I believe we are well positioned for the 4th quarter to outperform our sales and earnings guidance despite the overall uncertainty of the retail landscape.
Now I'll turn it over to Mike to provide more color around our Q3 and our Q4 outlook. Thanks, Manny. The comments I'm about to make are based on non GAAP results and are reconciled in our press release. Our non GAAP earnings per share for the quarter was $3.10 and was $0.10 better than the top end of our previous guidance. The beat was driven by strong Tommy Hilfiger performance in Europe and Asia Pacific.
The actual beat from the business was about $0.20 with interest also better than guide by $0.02 partially offset by tax expense, which was higher than guided to $0.12 as a result of timing. Part of the business beat was due to the acceleration of $20,000,000 of Tommy Hilfiger International shipments and a shift in the timing of marketing expenses, which both benefited Tommy Hilfiger in the Q3. These shifts will negatively impact the 4th quarter earnings projections by about 10,000,000 dollars Moving on to guidance. We are still planning revenue and earnings conservatively for the Q4. Pressure continues in the channels we operate in North America as we look at the balance of the year.
We continue to see heavier industry wide inventories in the channel than last year along with the decrease in traffic. Our international consumers who shop in our tourist outlet stores are not in the USA at the same levels as last year. In Asia, our businesses continue to be impacted by Hong Kong protests along with overall weaker traffic trends across China. In our European businesses, we see Tommy Hilfiger outperforming plants and Calvin Klein slightly better to plan. With significant amounts of business to be done in the upcoming holiday period and with our earnings release earlier than prior years, we've not reflected our current trends and instead have reflected trends more in line with Q3 into Q4.
Our current trends are somewhat better than our plans. We have also not planned to change in the level of promotions in our business. We have anticipated a highly promotional macro retail environment as elevated industry wide inventory levels in all channels will result in higher markdowns and in turn lower gross margins. For the full year 2019, we're projecting non GAAP earnings per share to be $9.43 to $9.45 This is a much tighter range than our previous guidance with an improvement of $0.13 on the low end of the range and $0.05 on the high end of the range. Our total FX headwind on the year continues to be estimated at $0.35 of translation, no change to our previous guidance.
Our guidance continues to include a negative $0.20 impact from tariffs. Overall for the year, we're projecting revenues conservatively and to grow approximately 1% as reported and approximately 4% on a constant currency basis. Tommy Hilfiger revenues are planned to increase 6% as reported and 9% on a constant currency basis. We project Calvin Klein revenues to be down 2% as reported and flat to last year on a constant currency basis. Our heritage business is planned to be down 3% to last year.
Overall, our operating margins are planned down 60 basis points for the year. Tommy Hilfiger operating margins are planned down about 120 basis points versus the prior year. 4th quarter Tommy Hilfiger operating margins will be down almost 400 basis points. The majority of this operating margin decline is in North America, but it's also negatively impacted by the timing in Tommy International I mentioned earlier. Calvin Klein operating margins are planned up 50 basis points for the year and our Heritage business operating margins are planned down 150 basis points for the year.
Although we are holding our overall operating margins to our previous guidance, we aggressively cleared inventory in the Q3 resulting in gross margins lower than we had planned. We plan to continue to aggressively clear inventory through the 4th quarter and end the year with inventories flat versus the prior year. Lastly, we continue to plan share repurchases for $300,000,000 on the year and our long term debt repayments are planned at $50,000,000 And with that, operator, we'll open it up for questions.
Thank And we will take our first question from Bob Drbul with Guggenheim.
Hey, good morning. Manny and Mike, when you guys talk about the promotional levels in the Q3 and your expectations around promotions in the Q4, can you just talk through a little bit the assumptions around markdown support, the assumptions around just the absolute risk that you have in the environment versus just how conservative you're planning the Q4, especially around gross margins?
Sure. Look, I think, I mean, when you've seen the results, especially some of our key accounts, department store sector, the orth mall sector, the 3rd quarter has been somewhat disappointing when you look at the comp trends and the margins. And we're expecting that, that from a projection point of view, we're projecting that trend to continue. I really believe there is very little risk in our guidance and projections for the Q4. I think we've built in strong conservative estimates when it comes to margin support and what would be necessary as well as our own gross margin markdown activity.
If we see some health in the environment, I think we're in a very good position to capture that as we go forward. So I think where we act to how the consumer and how the holiday trends are coming. It's given the calendar shift, the shorter time between Thanksgiving and Christmas, it's just a hard season to project at this point and really have the arms on it. But given our systems, we're able to see things on a daily basis and react very quickly. So we'll stay on top of it.
But I feel good about our guidance and projection for the Q4 and feel that we're in really good shape to outperform against that guidance.
Got it. And Manny, I was wondering if you could spend a little bit more time on China and Hong Kong. And I guess my questions are, are you seeing the impact from the China U. S. Trade relations impacting sort of the brands of Tom Hilfiger or Calvin Klein?
And when you think about the results there, and can you just talk generally around the total exposure that you have at this point on Hong Kong? Thanks.
Sure. Let me take the last part first. I guess Hong Kong is just a little bit over 1% of our business, dollars 100,000,000 in volume for that market. And when you look at that specifically, it's a big it's relatively speaking, as our competitors said, it's a big business for us and highly profitable. So that's putting pressure on the region.
I think we've done during the Q3, we did some brand work in China around the issue you just talked about. And we did not see from talking to consumers panels and talking to consumers leaving our stores and talking over 1,000 consumers, we didn't see any deterioration in the strength of our brand or the receptivity to buy both the Calvin Klein and Common Health and Good brands. So we haven't seen seen I know some people are concerned about this potential negative reaction to American brands. We haven't seen that in any significant way in China. What we have seen is and to put it in context, we have Calvin in particular was the 1st mover into the China market.
We have a large and probably larger than most of our competitors position in China with the business. And we see the pressure in the brick and mortar stores in the Q3. And I think that's really just an economic we're positioned as a premium brand, not a luxury brand, but a premium brand. I think that particular segment of the market is feeling the pressure that the consumer is feeling in purchasing and we're seeing negative comp store trends in our brick and mortar. And despite really strong growth on the digital platform, given the size of our brick and mortar business, it's not enough to offset that negative trend.
Some of our other competitors have relatively small store base and are growing similar to us online, but they don't have the pressure that we have in our stores. I think as we turned into the Q4, we've seen a bit of a sales improvement. I mentioned it in my comments. It's 3 weeks old. We'll see if that continues, but that gives us some way as we move into the important Q4 in China.
So we'll see how that all progresses as we move forward.
Thanks, Manny. Happy Thanksgiving.
Happy Thanksgiving, guys.
Our next question comes from Erinn Murphy with Piper Jaffray.
Great. Thanks. Good morning. Manny, I was hoping you could talk a little bit more about your view on the current logo cycle, particularly as it relates to the Tommy Hilfiger brand. It seems like some of your peers, you're starting to see pockets of slowdown in that trend.
So just curious how you feel the Tommy brand is positioned as we go into 2020 and just your views on overall kind of where we sit with the logo cycle?
Look, I think it's a good call out. The logo cycle, I think there's still a key portion of the business that's done there. I think as we move into spring in the United States and region, you'll really see a shift as to back to more of our core sportswear categories, key items, core driven products, and you'll see more you'll see less logo products. Still, appropriately, the brand always has an important component in logo, but we're not counting it as we go forward. Both in the performance area and in denim area, logo continues to be a key part of that business.
And we're seeing strong trends in the Tommy Jeans business overall. Internationally, I think we will be even quicker to move away from the logo trends, particularly in Europe and Asia. I think we're benefiting with that shift. We're seeing strong growth, particularly in our jeans business throughout Europe and Asia, and I think that trend should continue as well. But it's clear both for Calvin and Tommy, logo continues to be an important part of the product offering, but it's just it just reduced the exposure to it as we move forward.
Okay. That's helpful. And then I guess just my second question is on the Calvin Klein margins in North America. They're up nicely as you lap last year, but just curious if you can unpack a little bit more on the drivers there and just the sustainability of recapturing that margin here in North America for the Calvin brand?
Look, I think, look, you started to see you're seeing it in the Q3. I think that you'll see gross margin improvement continue into the Q4. I think when you look at operating margins, depending on the shift in marketing and whatever, I think you really need to look at the 6 month season. So I think you look at 3rd and 4th quarter, gross margins will be up in both quarters and operating margins for that period of time should be up as well as we've really been focusing on that product execution moving forward. And I think, Joe, as we go into 2020, that's a key part of the story as we really focus in on our product offerings and the enhancements that we see coming forward.
So I think that's going to be a key issue for us. We're starting to see it now. We're starting to see improved operating income performance and gross margin performance, and that trend should continue into the Q3 so into the Q4.
Got it. Thank you and happy holidays to you all.
Thank you. Same to you.
Your next question comes from Michael Binetti with Credit Suisse.
Hey guys, thanks for taking all the questions here. Manny, I know you don't want to get over your skis here, but as we look out past 2019, I know there's some fairly real and tangible puts and takes in the business next year that we can see coming with pretty good visibility this year. I remember on this call a year ago, you and I talked about there being some translational FX coming in 2019, but you said there was no transactional FX. It's all been translational so far as you've reported. In the past, transactional has tacked on an impact in the following year.
Is it fair to assume that following year. Is it fair to assume we should already expect that to show up next year a little bit? And then who knows on tariffs, obviously, but all else equal, the $0.20 headwind this year is largely in the second half. If there's no change, we probably get the other half of that in the first half of next year. Are there any other broad brushstrokes, puts or takes we should think about as we think higher level about the low double digit longer term earnings algorithm for the business as we try to look
at 2019. I think you hit the 2 key headwinds that we are looking back for next year. Farm term fee transaction will be a headwind depending where the dollar winds up. Some of that has already been locked in since we hedge out in 9 to 12 months and as we look at it. So past is prologue that you'll see that piece come in.
On the tariffs, it's really hard to understand what's going on because we're not sure exactly what's going to be in place given the thoughts that are going on here at Hong Kong. But you said it correctly, it was about $0.20 this year. A bigger tranche comes in for next year. Our exposure overall goes the other way as we reduce our exposure in China. But I think you said it well and that you can expect that what it was this year, it would be we should see a similar impact next year on top of that.
So that's how we're looking at it. Those 2 key components are what we're trying to manage them. I don't think it really I think when you think about our long term earnings algorithms, I don't think it changes anything on a constant currency basis. I think we are comfortable that we can grow our sales in the 3% to 5% kind of range and we can grow our bottom line in double digits moving forward. So that algorithm continues, and we have to deal with the vague ways of currency, is it favorable or unfavorable, like the business model, I think the underlying strength of the brand continues to be in place and we're confident in it.
Got you. And let me ask you, I guess, a longer term question, Manny. I have to ask you, if you think about reflect back on this year and last year, I guess, as you think about the next several years in the business, how do you feel about your U. S. Distribution footprint today?
I think look, I think you need to I think our brand look, when you think about the Calvin and Tommy brands, we have significant strength with those brands. And we will we have consistently found the right channels of distribution to sell our products into. The partner stores will continue to be a critical portion of our growth. For those two brands, Macy's will continue to be a key customer for us. Nordstrom's will continue to be a key customer for us as we move forward.
And we also have a direct to consumer business here in North America. And I think we can manage that business as we go forward as those customers go through it as well. No surprise when you talk about it, there's too much retail real estate in the United States. I think we're going to continue to see that shift down. For us, we've always managed the U.
S. Market as a slow growth market, and we'll continue to manage it that way. The online our online presence in North America continues to grow, both that we operate directly and through a number of our pure play retailers as well as our key department store retailers here. So I'm confident that, that will continue to grow. But the real growth for us with those R2 brands should continue to be internationally in those markets.
And that's how we're looking at it as we grow players.
Okay. Thanks a lot for all the detail, Manny.
Thank you.
Our next question comes from Jay Sole with UBS.
Great. Thanks so much. Manny, I just follow-up on a tariff question. It seems like for this Q3 and Q4, prices were sort of locked in and that sort of put the burden of absorbing tariff costs more on brands than maybe other parties. Just looking back over the last 3 months as negotiations have gone on, do you see more of a sharing of the cost burden or an ability to pass it on?
Or can you just give us any color about how the dynamic is changing about who absorbs the tariff as we look into fiscal 2020?
It is it continues to be a volatile environment there because the uncertainty just continues and the talks go on and you hear one source telling you there's a Phase 1 agreement coming that there'll be no new tariffs. And so it's very hard to plan. We are partnering with all of our key factories. And our key factories are working with us as we go into spring. It really is going to determine what happens post spring as we move forward.
If are these long lasting tariffs? Are these short term in nature? If they continue to be short term in nature, I think our factories are going to partner with us to work through it as we go forward. At the same time, we're reducing our exposure. We should be around 10% to 12% exposed.
U. S. Sourcing out of China will be about 10% of our overall sourcing mix. And I think that compares to 3 or 4 years ago, we were close to 35% to 40%. So I think we are moving strategically as we can.
That should be somewhat of an offset. We will look at targeted price increases as we go forward, but we have to be also cognizant of the consumer and not going too hard, too fast there, working with our retail partners. So that's an ongoing discussion. And I think they're all levers to pull, and we will pull those levers as we go forward. So that it's a challenge and the uncertainty is it's making it more of a challenge.
Got it. And then I apologize in advance for asking a short term question, but just on the calendar this year for the 6 fewer days between Thanksgiving and Christmas. I'm sure as many retailers look at their comps over the last week, it looks significantly down year over year. And is the assumption that look over the next week, everything gets made back up and everybody's back to square where they expect to be and then sort of just the rest of the season is the rest of the season? Or at what point because you said at the top of the call that it's sort of hard to kind of figure out where the business is at given the shift.
At what point does, say, just the average retail out there decided, okay, things aren't trending as planned? At what point does maybe the retail environment get concerned that this counter shift is having a negative impact. If we get through Cyber Monday and things aren't good, then there's only a handful of weeks left before Christmas and then maybe people start to incrementally promote maybe more than they expected. How does it play out in terms of how retailers are going to think about their decision making process because of the shorter calendar?
Okay. That's a it's a bit of a loaded question. But But let me start by saying is our assumption and our guidance is it is going to be promotional and that Christmas is going to come late. It's been coming later every throughout the last 5 years. It's been coming later.
And this compressed calendar, I think, is only going to put more pressure on it. That's why we're trying to be as conservative as we are about 4th quarter margins and 4th quarter sales trends. I think we're going to get a really good picture at the end of this as we get through Cyber Monday into the early part of next week. And is there there will be a catch up there, obviously, but how big a catch up? And then how much of even if you're somewhat behind, which I would expect you would be because you have 6 less shopping days at that point, there's an assumption that the next 2 or 3 weeks is going to be positive comps during that period of time year over year because of the compression in the calendar.
And that's what everybody will be watching. I have to be honest, our assumption is it's going to be more promotional. We feel that way because let's be honest, the Q3 was not a strong quarter. The seasonal weather patterns weren't great for early selling this spring. We also are bouncing business early November, so some really good selling early November as the weather turned cold, which is a good sign.
So now we're looking to see where it all plays itself out. And it's nobody knows that this calendar is setting up the way it is. But this is what we're trying to deal with, and we're trying to be as prudent as we can about projecting out the Q4.
Got it. Super helpful. Thank you so much.
Your next question comes from Ike Boruchow with Wells Fargo.
Hey, good morning everyone. I guess Mandy, just a question I want to focus on Tommy Hilfiger profitability. So we saw the margins in Q3 and when you gave the guidance for Q4. I guess my question is what exactly is driving the margin degradation? Is it the promotions and the deleverage in the North America retail fleet?
And then the follow-up to that is, assuming that there's no improvement in tourism and the dynamics that are basically causing that. Should we assume that that continues into the first half of next year because you really didn't start to see that pressure build until this quarter? So I guess that's my way of kind of asking on the margin performance into next fiscal year, while I know you're not giving guidance, is it safe to assume probably more upside or more earnings growth in the back half next year relative to the first half? Just kind of curious how you would answer all that stuff.
Okay. Look, we're not giving guidance for next year, but let me put some color on what you said because I think some of what you said is not. Let me just say. The I have to put things into context. Tommy Hilfiger 2018 is coming off North America comps were up between 6% 7% for the year.
Strong trends coming in. And given that trend of business, we bought into a portion of that sales growth. We started to see in the first quarter of last year, it started in February, we started to see a real pullback in international tourism trends into the U. S. And we started to see negative comps.
That intensified in the second and third quarter. So we start to lap this negative comp store trend beginning in the Q1, but really going into the Q2 of 2019, so that comparison. Also, since we bought into those sales trends 6 months out, we had current inventory that needed to be moved and we moved aggressively to move through that inventory. And that's the pressure you saw the sell off of spring summer bid in the second quarter and into Q3 this year. We're assuming it's going to continue to be promotional, so margins will be under pressure in the 4th quarter.
That should ease a bit into the Q1, and then you should really start to cycle that as we go into the Q2 of 2020. So I think that's the way you have to look at it. And keep in mind, Tommy Hilfiger North America business is coming off of 3 years of significant comp store growth into this 2019 year. 2018 was a record year for the brand in the United States. So locking that has been challenging for us as we've gone forward.
I think it starts to level out as we get into 2020.
Thanks, Manny. That's helpful. And just a quick follow-up. I mean, we've had some consolidation in the luxury space announced this week. Maybe your state of the union on the industry is challenged.
Would you expect more M and A in the space? And then kind of how are you thinking about that as it pertains to your company?
Sure. I think, well, over the next 12 to 24 months, I think the retail sector and the retail apparel sector is going to have consolidation. It's I think it's and given the dynamics of the industry, it's to me, it's almost a given. The challenge, I think, from a pure M and A point of view, at this point, financing markets are very strong. Credit is available.
We have a very strong balance sheet, which can give us the ability to do a transaction. We will be looking we will be looking forward to doing that. One of the challenges you always face as the sector has gone through a multiple compression is people are looking at the stock price or the valuation and they're comparing to where it was 12 or 15 months ago. And that needs to settle in a bit in people's minds to get a sense of what current valuations actually are as we move forward and deal with all this uncertainty. But my general feeling is there will be consolidation.
M and A will be a key part of PVH's growth and then we'll continue to look for opportunities.
Great. Thanks. Happy holidays, everyone.
Thank you.
Your next question comes from Dana Telsey with Telsey Advisory Group.
Good morning, everyone. Manny, just following up on the M and A acquisition. You've done small acquisitions and large acquisitions. You've done acquisitions of online and data and then you've also done brand acquisitions. What do you think is most appealing to you that helps to move the needle in enhancing the platform of the entire business going forward?
Sure. Look, Dana, the acquisition principally, the acquisition we've done has been recapturing our Calvin Klein and Tommy Hilfiger business, international businesses around the world, Australia, Southeast Asia, looking at Brazil, a number of the transactions, the China transaction a few years ago. That's been the focus the last 3 to 5 years. I think that consolidation, there's a few things still to do, but relatively speaking, nothing that dramatically moves the needle. I think where we're really thinking about is on the branded side.
And we would think about looking to add another brand to the portfolio or a collection of brands depending on the acquisition. I think scale is becoming more and more important. I think the investments that you need to make in order to be competitive, the digital journey that we're all on, the shifting channels of distribution, moving online more so than the investments in order to compete there that you need to make, I think scale becomes even more important as you go forward. I think we have a demonstrated track record of knowing how to do acquisitions, how to integrate them, to get the benefits out of it, how to manage that from a portfolio company, which I think people underestimate is the awareness to keep what's critical to operate the brands and keep those separate from the design, product, aesthetic point of view and being able to leverage the back office, all of the systems, the capabilities and the strategies in order to take advantage of that and make the investments for each of the brands. I think we understand how that's done and that's we're aggressively looking to move in that direction.
Thank you.
We'll take our next question from Heather Balsky with Bank of America. Hi. Thank you
for taking my question. Can you dig a little bit more into the Calvin business? And your first, just your thoughts on your expectations for operating margin. A couple of quarters ago, you've been talking about 200 basis points of improvement, but the environment has clearly changed. Also, it sounds like the new denim product is resonating.
Can you just talk about the trends you're seeing, especially in the U. S. Channel? And is there more opportunity into next year on the product side?
Okay. So I think on the Calvin business for the year, we're looking at operating margins up about 50 basis points. I think we were looking for slightly higher than that at the beginning of the year, but some of the pressure that's gone on, particularly in Asia, in the Hong Kong and China businesses has put an impact on that. I think over the next 3 years, there's the opportunity to expand margins to another 200 basis points. I think if we are again, we're not giving guidance, but I think if we were looking at next year, we'd be looking for something between 40 70 basis points improvement in operating margin going forward and hopefully could outperform that.
But that's how we're thinking about the business. I think the second part of your question was on denim because you broke up a little bit, so I apologize. I think we're seeing really we're seeing good results, particularly in core denim products on jeans and bottoms. Here in the United States, that's been the driver is the bottom side of our men's business. G3 just launched the WIMMUS product here in North America.
The receptivity of that product has been outstanding. We're seeing really strong sell throughs there and they're starting and they've gotten strong placements. And I think if you just go to Herald Square, you'll see the outstanding presentation they have there with the Calvin Klein Williams jeans product. Internationally, I think we're probably 6 months ahead of where we are in North America. The international product, I think, is really taking an upgrade.
We've seen very strong sell throughs of all tops and bottoms throughout Europe and in all regions with the exception of China, given the dynamics that are going on there. We're seeing good sales use of products. So I think we're seeing good receptivity to the products from the consumer and from the retailers. The order books in Europe, which is our best indication, continue to be very strong for the Calvin Klein Juice product in the spring and the initial offering of products before. So I think we're on the right track with that product back to the brand's DNA.
And I think the receptivity of our product that we're seeing, particularly in international, gives us confidence in the turnaround on that business.
Great. Thank you very much. And you just got my question. So thank you.
Next question?
Next question comes from Jamie Merriman with Bernstein. Thanks very much. Just picking up on the M and A topic, do you have a view on the brands that you acquire, whether you have a preference for wholesale exposure given what you know with Calvin Klein and Tommy Hilfiger? Or would you be more interested in brands that have more of a direct to consumer go to market strategy?
I think it's 2 things. I think if you look at our balance of wholesale to retail, we're probably on a dollar basis, we're pretty we're 55%, 45% when you think about the early breakout. And as you move internationally, we're even more direct to consumer, particularly throughout Asia, for the most part is probably 80% retail direct to consumer. And our Europe business is probably in that 55%, 45% range. I also think when you think about wholesale versus retail, it's strength of the market is different when you're in Europe and when you're versus the United States or when you're in South America and Asia.
So our wholesale businesses continue to be our most profitable businesses overall. Our retail businesses are highly profitable as well, but our wholesale businesses are even more profitable as we go forward. And the department store channel internationally continues to be very healthy for us. I think we are comfortable running both a direct to consumer model, which we do with both Calvin and Tommy, and we're comfortable understanding how to manage that wholesale channel distribution and even more importantly, how to manage both at the same time. We have always been multichannel retailers.
We understand that you have to speak to the consumer wherever they want to buy the product. And I think we understand how to really go after both of those markets. So it would depend on the brand and where the brand is currently positioned. Operator, this will be our last question. It's 10 o'clock.
Thank you.
We'll take our last question from John Kernan with Cowen.
Hey, good morning. Thanks for taking my question.
Manny, can you talk about
the theme of speed and the ability to flow inventory faster, control markdowns better throughout the entire retail ecosystem. It feels like there's a long term opportunity here. I know you're using data, you've made a lot of investments in digital, CapEx has stepped up quite a bit the last several years. I was just wondering when you think PVH and the industry in general is going to reach a point where the working capital and the lead times can improve across the entire ecosystem?
Okay. So I don't want to speak for the whole industry because I find the apparel industry to be an undisciplined industry. There always seems to be excess product. There always seems to be this appetite to create more and then a clay. So the industry, I think, is an undisciplined industry in many respects.
I think we've made tremendous investments and continue to make investments in 3 d design, in shortening our quality management business with with reduced lead times overall. And I think you'll see that continuing. I think over the next 2 years in particular, you'll see more and more of that in the business environment. I think the challenge that's going on, you have to at least be intellectually honest, is as of the Q4 of 2018, just to put things in perspective, the industry was coming off of a very strong Q4. Everyone bought into that and business fell off, department store business in North America, in particular, and our business in China and most businesses in China really started to feel the pressure of that business.
The lead times people bought into positive comp store sales trends. Most of the sales trends in North America, in particular, were low single digit negative, minus 2.3%. That got worse in the Q3. I think when you're trying to really get ahead of that trend, cycles lead times have improved from 9 months to 6 months, but they're not 6 days. So those cycles are and buying into that trend is really what's causing the challenges.
The glut of overall retail from private label programs in department stores and oversaturation of certain brands is putting pressure on business. The fact that we have the tariffs that everybody was dealing with and people were accelerating shipments into the United States in order to avoid the deadlines on tariffs coming into effect, force people to take this in 30 to 45 days earlier than planned and then the tariff date got pushed out and then that was done again in September. Those pressures are real and it's look, we have to deal with what's coming out of here, but that's partially the reason why you're seeing some of these heightened inventory. I think when you I know the way retailers are buying spring 2020, we're seeing a real tightness of open to buy dollars, much more conservatism being built into sales plan. I think next year is going to be much more of a margin year as opposed to a top line growth year here in North America.
And that's how you think you have to plan the business and think about it. But clearly, the investments are being made across the board to really move the lead times down, reduce your lockdown exposure as you go forward. And I think it's a good call out on your part. But the industry overall has not been a leader when it's come to leadership in managing inventories and working capital. So it really needs to move forward on that.
So thank you. So look, we want to wish everybody happy and healthy Thanksgiving to you and your families. We also wish you a happy holiday season going forward, and we look forward to speaking to you on our Q4 earnings call in March. Have a great holiday season. All the best.
Have a good day. Thank you.
That concludes today's presentation. Thank you for your participation. You may now disconnect.