Live. Good morning. I'm Mark Fischer, general counsel and secretary of PVH Corp. As you take your seats, I will read you the most important captivating information you will hear this morning, our safe harbor statement. The presentations to be made during this meeting include market and industry data from research, surveys, studies, and publications issued by third parties, and information from customers. While we believe that the information is reliable, we have not verified it and do not represent its accuracy. The presentations also contain forward-looking statements that reflect our views as of June 1st, 2015, of future events and performance. These statements are subject to risks and uncertainties, including those identified in our SEC filings. As such, our future results could differ materially from previous results or current expectations.
These risks include our right to change our strategies, objectives, and intentions, our need to use significant cash flow to service our debt obligations, our business' vulnerability to weather, economic conditions, fuel prices, fashion trends, loss of retail accounts, epidemics, war, terrorism, scarcity of raw materials, and other factors. Our reliance on the sales of our business partners and our exposure to the behavior of our associates, business partners, and the celebrities and designers whose names we own and license. We do not undertake any obligation to update publicly any forward-looking statement, including estimates regarding revenue and earnings. The presentations also include non-GAAP financial measures as defined by the SEC. Reconciliations of these measures are included in our current reports on Form 8-K identified in the press release announcing this meeting. The 8-Ks are available on pvh.com and the SEC's website.
Now I'd like to introduce Manny Chirico, Chairman and CEO of PVH.
Good morning, everyone. I'd like to welcome you all and call officially the meeting to order, the 2015 annual meeting of stockholders of the PVH Corp. I'd first like to introduce our directors and nominees for directors who are present. If they just stand when I call their names. Mary Baglivo, Brent Callinicos, Juan Figuereo, Joe Fuller, Jim Marino, Penny McIntyre, Henry Nasella, Ed Rosenfeld, and Craig Rydin. All of these individuals, along with myself and Fred Gehring, Vice Chairman of PVH and Executive Chairman of Tommy Hilfiger, who is attending the Tommy Hilfiger Spring 2016 line opening in Amsterdam, are nominees for director. Our accountants are also here. Michael Petrone, David Verderami, and Steven Andriello of Ernst & Young, our outside auditors. They're available for any questions you might have, and they'll be available to respond to your questions.
The secretary has informed me that we have an affidavit certifying the mailing of the notice of the annual meeting, the proxy statement, the form of the proxy, and the annual report. It will be annexed to the minutes of the meeting. Dawn Coleman of Wells Fargo Shareowner Services, our transfer agent, has been appointed as Inspector of Election for this meeting. An oath of inspector has been filed and will be annexed to the minutes of this meeting. Any stockholder who has not executed a proxy or wishes to change his or her proxy may vote their shares in person by requesting a registration form and ballots. Does anyone need one? The number of outstanding shares of our common stock eligible to vote as of April 23rd, 2015, was 82,663,562.
The Inspectors of Election have advised me that we have over 50% of the eligible votes represented at the meeting. Therefore, we have a quorum. In fact, we have approximately 69 million votes or 83.5% of the eligible votes represented at the meeting. As indicated in the proxy statement, we have four matters to vote upon at the meeting. After the introduction of each matter, you will be given the opportunity to comment or ask questions. Please hold all other questions about operations, business, or any other matters until the question and answer period later in this meeting. First item for election, the election of directors. The meeting is now open to consider the 11 directors for the coming year. May I have the proposal?
I move that the stockholders of PVH Corp. elect as directors Mary Baglivo, Brent Callinicos, Emanuel Chirico, Juan Figuereo, Joseph B. Fuller, Fred Gehring, V. James Marino, G. Penny McIntyre, Henry Nasella, Edward R. Rosenfeld, and Craig Rydin to serve for a term of one year, expiring at the annual meeting of stockholders in 2016, as set forth in the proxy statement for this meeting.
Are there any questions or comments concerning the directors? There being no questions, I'll close the discussion. The meeting is now open to consider the approval of the company's 2006 Stock Incentive Plan as amended. May I have the proposal, please?
I move that the stockholders of PVH Corp. approve the company's 2006 Stock Incentive Plan, as amended, as set forth in the proxy statement for this meeting.
Any questions or comments concerning the proposal? There being no questions, I close the matter. The meeting is now open to consider the approval on an advisory basis of the compensation paid to the company's named executive officers. May I have the proposal?
I move that the stockholders of PVH Corp. approve on an advisory basis the compensation paid to our named executive officers as disclosed pursuant to the rules of the Securities and Exchange Commission in the proxy statement for this meeting.
Any questions or comments concerning the proposal? I close the discussion relating to that matter. The meeting is now open to consider the ratification of the appointment of Ernst & Young LLP as auditors for the current fiscal year. May I have the proposal?
I move that the stockholders of PVH Corp ratify the appointment of Ernst & Young LLP as independent auditors of the company for the fiscal year ending January 31, 2016, as set forth in the proxy statement for this meeting.
Questions or comments concerning the appointment of the auditors? There being no questions, I close the matter. I'd like to just give a brief update on business overall, where we stand as a company going into this fiscal year. Just to give a sense of PVH, an overview about our size and who we are. Company was established in 1881, well over 100 years ago. The company today is over $8 billion in global revenues, 30,000 employees around the world, 700,000 people reached through our supply chain, factory workers around the world. We operate in over 20 countries and speak over 40 different languages. Our PVH Foundation, which is our philanthropic funding for all of our missions around the world, has been in existence for over 30 years. Over 40% of our revenues come from outside of North America.
In fact, outside the United States, the number is over 45%. Between all of our brands, there's over 20,000 points of sales where you could buy merchandise under our labels. The business has global retail sales represented of over $18 billion. When you break out our revenues and think of the company, our largest brand globally is Calvin Klein, with over $8 billion in global retail sales. About a $3 billion business. Operating margins over 14%. The Tommy Hilfiger business, about a $7 billion business worldwide from a retail sales point of view. Our revenues are about $3.6 billion, EBIT margins in excess of 14%. Our Heritage businesses, which really started it all, generate a significant amount of cash flow for the business, has helped us to really invest and grow the business, enabling us to purchase the powerhouse brands of Calvin Klein and Tommy Hilfiger.
Global retail sales just under $4 billion. Revenue's about $1.8 billion. Last year, in a challenging environment, operating margins were about 6%, which we believe over time we can grow to double-digit margins back to historic levels. Our growth over the years, we always measure ourselves from the time we did the Calvin Klein acquisition in 2003, has been very strong. During that period of time, 16% compounded annual revenue growth. Earnings per share growth in excess of 20%. It's been a strong run. It's been built on the back of a strong operating platform that's enabled us to put on top of it these great world-class brands and really drive our growth while trying to connect with the consumer globally.
One of the strong features of the company is its free cash flow generation. I think this chart really depicts what we look like on an ongoing basis. To remind everyone, in 2012, 2013, that was the Warnaco acquisition. We funded a significant amount of restructuring of the business as we went forward. As we got to a more normal level in 2014, we generated almost $470 million of free cash flow. That represents about 77% of our income. Over the last 12 months, if you go back to measure from the first quarter, that grows to just under $600 million. I think absent a significant acquisition or significant stock buyback, these are the kind of numbers that you can look for us to continue to grow. We've paid down just under $1 billion of our debt since the Warnaco acquisition two years ago.
That should continue this year. We're projecting to pay back about $350 million of debt this year. You could see what that does to us from a leverage point of view. Our gross leverage ratio significantly improves. Our balance sheet is strong and healthy, and it gives us the ability not only to invest in the business but to invest in growth opportunities outside of our business. When you think about that, some of the strategic objectives that we have, and we've really focused on in our business is first and foremost, is to continue to invest in our product, our brands, our presentation, and our marketing. Clearly, that's been a highlight for us.
That's been a focal point for us to reinvest our profits back into these brands so that they continue to perform at such a high level and can give us the returns that we've enjoyed over the last 10 years. One of the key objectives we have is turning around the Calvin Klein European business that we acquired two years ago. That business had been a money-losing business. Today, it's marginally profitable. It's about a $500 million business that we believe over the next four years will grow to about $750 million with operating margins that we believe will approach 10%. A tremendous opportunity for us to take the world-class brand that Calvin Klein is and start to see those financial results in the European market.
Also, there's a real focus within the company to expand further into Asia and Latin America, both for Tommy Hilfiger and for Calvin Klein. With the Warnaco acquisition, has really given us the operating platforms throughout Asia and in Brazil and Mexico, to really take advantage of the growth in those markets that have over the last five years enjoyed outsized growth, and we believe that can continue. One of the ways that we see doing that is assuming more direct control over various international licensed businesses associated with Calvin and Tommy.
We want to take more direct control, either through a pure acquisition and bringing in-house some of those businesses throughout Asia and Latin America, or going through a joint venture where we would own a substantial portion of those businesses, a majority portion or just below that, where we would have more direct control of the business and enjoy the profits associated with the local business besides collecting our royalties. We're also looking at categories that we think make sense to bring back in-house. We think this opportunity represents over $1 billion in sales at attractive operating margins, given the nature of a licensing agreement that has an end term that we could bring in-house at attractive purchase prices, that would enable us to deliver an accretive transaction for our shareholders.
The other areas, in order to do all of that, we need to continue to invest in our operating platforms, our systems, to really support the growth initiatives that we have through take-back of licenses, but also that we would enjoy through the growth of the Calvin Klein and Tommy Hilfiger businesses that we really see as outsized growth for the next few years. Then, of course, the most important asset that we have is our people, and we need to continue to invest in those people, developing them, giving the opportunity to expand and to grow their careers here. We have enjoyed the ability to not only attract talent, but also to retain talent over the long term. I think that needs to continue, not only domestically, but internationally. When you look at our growth profile as we look out, you think about the three businesses.
The Calvin and Tommy businesses, which are a tremendous growth vehicle for us, powerhouse brands, they represent today about 85% of our profits. We see those businesses on the top line growing between mid-single digits and high single digits. To get to the high single digits kind of growth level, we need a little bit more help from the economy, especially in the international markets. Clearly continuing to grow in this mid-single-digit range we think is here for us to really attain given the strength of the brands and the opportunities we see with those brands. We see further margin expansion in both of the businesses. We think that we could get to 15% or slightly higher in both businesses as we move forward over the next three years. The Heritage business, which we see as more of a low single digit kind of growth business.
We see ourselves really over the next two to three years clawing back to our historic level of profitability of 10%. We will clearly see a significant improvement this year from the 2014 levels, and we think over the next three years that we could start to approach our historic level of profitability of 10% in that business. That business is very cash generative. It doesn't require a significant amount of capital investment, and we've been able to take that cash flow and reinvest that business back into potential growth opportunities for the company. We like our business model. As we look overall, we see growth on the top line in the mid-single digit range, we see EBIT margins improving to well over 12% over the next three years as we move forward as well.
We've always said that you measure a company's success not only by their bottom line or their balance sheet, you measure it by the type of corporate citizen they are. We've always had a commitment to corporate social responsibility. We focus on three key areas: protecting human rights around the world, preserving the environment, and supporting the communities where our brands operate and sell their goods. We've been a leader in Bangladesh with the Accord on Fire and Building Safety, trying to make factory safety for factory workers throughout that portion of the world. We've been building on our human rights program, trying to really grow also our environmental programs, both in our factory base and partnering with the right type of factories that really are concerned about these issues, but also in our distribution centers and our offices, looking to conserve energy as we operate.
We continue to support through our philanthropic efforts. Our focal point is improving the lives of women and children around the world. Our global partner is Save the Children. We've made a $5 million multi-year commitment to Save the Children. They're a great partner for us. They allow us to impact the lives of children and women around the world, and allow us to really do that significantly in developing portions of the world. Our 2014 corporate social responsibility report will be coming out within the next 30 days. It'll be on our PVH website. Please look for it. We're very proud of it, and we try to be as transparent as possible, not only with our shareholders, but our other stakeholders as well around the world. Just again, not to take a bow, but just to recognize that you are recognized for some of these efforts by outside organizations.
The type of company and employer we are, you can see that in a number of these. We've been recognized for our digital marketing and how we connect with our consumer by L2 with our two powerhouse brands. We're recognized as being a good corporate citizen by CR Magazine, which I think says a lot. Also, our marketing efforts and our communication efforts on the corporate social responsibility area. With that, I will open it up. If any shareholder has any questions about the company, its business operations, or any other matters, this is the time to ask those questions. Anyone who's got a question? Here we have. If you'd please state your name and your affiliation, I would appreciate it. Could somebody help the gentleman get to the microphone?
Thank you.
You're welcome.
Philip Berman, portfolio manager and shareholder. Some comments and questions together. The past year has been a second transition year with minor changes in earnings per share and a flat stock price. There's actually good news to the decline from the record high posted in PVH's stock price, and that is from a technical point of view, the backing and filling of PVH's stock price in the 2014-2015 period has made our stock's technical chart much stronger in preparation for the next wave up when earnings per share advance sharply again. Measured against all of our peer group, our stock's performance was way ahead of the group. Wall Street has been exceptionally patient with PVH's stock due to the unequivocal total confidence in Manny Chirico and Fred Gehring at the helm of the business. Now some questions.
How much of PVH's plateauing in earnings per share is due to the growing pain/indigestion from acquisitions, and how much is due to the general secular change in retailing, where shoppers no longer buy up a storm since 2008? How much can be attributed to the currency exchange and Europe's general economic weakness?
I think as we look at fiscal 2015, and if you look at the underlying business results, the noise in the business is really currency related. We've talked about that the impact of this year's earnings is about $120 million or $1.20 a share. That's put tremendous pressure on the earnings and has forced us to plan the business on a reported basis at a level that we're not satisfied with the results. If you look through that and you look at the constant currency growth on the top line, which we're projecting to be about 3% to 4%, and if you look at the growth from an earnings per share point of view, it would be more like between $8 and $8.15, which would be closer to 12% earnings growth this year.
The issue for 2015 has really been the impact on the foreign currency line that is really masking the dramatic improvement we're seeing, particularly in the Calvin Klein business.
Under Allen Questrom before the financial crisis, J.C. Penney's sales were booming. Now under Mike Ullman, the company has averted bankruptcy, and we have a stable to slightly profitable J.C. Penney. In the event the new J.C. Penney CEO is unable to bring sales back to the pre-2008 levels, how does that affect your five-year business plan?
Well, we were fortunate with J.C. Penney. Throughout the storm, the Ron Johnson era, our brands were viewed as critical to the success of J.C. Penney before Ron Johnson, during Ron Johnson, and then after Ron Johnson, which I think is a testament both to particularly the Van Heusen, the Izod, and our Warner's business at J.C. Penney. That we've managed from 2010 through 2014 to keep that business pretty stable during those years. We haven't suffered Along with what JCPenney has suffered, a significant decline in the business. While their business was shrinking, our proportion of their business continued to grow. We feel much better about the management direction of the company today, where it's at, as you mentioned. I think Mike Ullman has stabilized the business. The new management team that's coming in has got a clear direction how to take that business forward.
We are working in lockstep with JCPenney to address issues within the business, we are actually planning this year and next year for growth within JCPenney. If their continued success happens, that growth could accelerate.
Companies are now finding that the millennial group are now a much desired customer, both currently and for the future. What are we doing beyond social media advertising to attract that group to becoming loyal PVH branded core customers?
Yeah. It's a great question. We clearly focus on that demographic. Millennials are critical. They spend a disproportionate share of their discretionary spending on apparel, which is key for us. We're fortunate when we look at our demographics of our consumer that we play very well in that zone. We market directly to them, both from a social media point of view. We find, especially on the male side of that millennial customer, that sports is a tremendous way to connect with that consumer. We do that with our Heritage brands. We do that with the Tommy Hilfiger business. We also do it with the Calvin Klein business. I think it's a real focal point for us. You touched on and said excluding, Social media is the way to reach and to engage that consumer, to have a call to action with that consumer.
A lot of our campaigns are built around that. They're much more interested, not just in a pretty picture or advertising. They want to understand your brand. They want to interact with your brand, That's what we try to do every day to make those connections with that consumer.
Do we have any plans to compete in the new biometric technology wearables business?
The Speedo business, in particular, is directly involved in that area with wearable technology. From a fitness point of view, it's a key part of their growth initiative. It's a key part of how they are really trying to connect with that consumer, not only from a swim point of view, but also from an aquatic fitness point of view. As the consumer population is aging, what we're finding is that working out in the pool is a way to really have less impact on your body as you move forward. Connecting with that consumer at that level is right up Speedo's alley, and it's been a focal point for us to really work with some key partners, Dick's Sporting Goods, Sports Authority, The Academy, to really start to focus in on those areas, and we see it as a significant growth vehicle for us as we move forward.
Thank you.
Any other questions? Yes, sir.
David Schilling from the Interfaith Center on Corporate Responsibility. It's good to be back at the shareholder meeting of PVH.
Good to have you, David.
Thank you. Not so much a question. I just wanted to sort of reflect a little bit on the relationship between CSR and the company. I think the Interfaith Center on Corporate Responsibility, with its about 300 faith-based members and SRI firms, et cetera, started engaging the company in about 1990. For 25 years, we've really not only observed, but really have actively engaged the company and have seen tremendous progress. I think it's important for other shareholders to know that some of the issues that you're looking at in terms of CSR are material to the company and really present a risk not only to the business reputation, but to the communities and to the workers where a lot of the products are made. It's refreshing, I think, to reflect that the CSR commitment is seen embedded into the business itself.
I can't tell you how many wonderful statements on CSR are on many company websites, and that's about it. Those statements need to be embedded in the daily processes, and I think that's part of the business plan. It's also a part of the interactions daily under Melanie Steiner's leadership in factories in so many different countries, and to see the positive impact that can be made when you're really looking at key issues. I think from the perspective of people and the planet, two big issues that are confronting not just a company, but the whole world, PVH is making a contribution. I think you mentioned the Bangladesh Accord. There aren't too many companies, especially U.S. companies, that have taken this on, and recognizing the tremendous horror of over 1,100, almost 1,200 workers killed and maybe 2,500 injured seriously in Rana Plaza in 2013, on April 24th.
Rather than just looking at that as a tragedy, the company has just poured in a lot of resources. These are resources that are gaining credibility within the Bangladesh context, but globally. You can't really see it as money going out in order to really help create a safe and healthy workplace in the garment sector there, but rather as a kind of example of what the values are that are being implemented in that space. I think another is that really strong commitment on the chemicals management commitment. Really trying to get chemicals out of the workplace. Because I've been in many countries where you've seen workers that have been hurt just by the process within the factory.
Making that commitment with other brands and retailers to get out hazardous chemicals by 2020, I think, is a huge CSR commitment that makes sense from every perspective, from the human perspective, from the economic and the environmental perspective. Also, I think the whole issues around worker rights, where the shared commitment is not just a piece of paper, it's actually there are people that are looking in the factories to make a difference in their lives. That helps the productivity, but it's done in a way that enables workers to meet their basic needs and provide for their families. One of the areas that we're working on a lot is human trafficking and modern slavery, and we'd love to do more work with PVH to help the industry deal with that.
A lot of our work over the last 30 years in supply chains has been what's happening in the factory. How do we help to create a culture of compliance? That also, we need to look beyond the factory walls. How do workers get there? We found through our studies and, of course, studies of other groups, that how workers get to the factory really make a difference. They might pay huge fees to a labor broker and end up in a factory where they are literally bonded laborers. I think this is a critical area.
As we look at the planet, this company, I think probably, Manny, it was maybe 2011, 2012, really looking more carefully at the environmental piece, the CO2 footprint of stores, headquarters stores, distribution centers, but also really driving that down the supply chain, then also looking for ways to cut out wasted energy, water use in the processes, and creating products that are much more sustainable. I think that's absolutely critical. Today, the official encyclical of Pope Francis has been released. I think it's not really a scientific treatise. It's a moral treatise that's calling companies, individuals, governments, religious groups to look at what they can do to combat global warming. I think in that spirit, the company is really on the right track. We always want more. We want continuous improvement, as do you.
I think the reporting that you're doing, the systems you have in place that not only look at risk to the company, but risk to children and women and workers is really a valuable approach. For this, we commend the company and look forward to working with you for the next, how many years? 20 years? Who knows how long it's going to take, but thank you very much.
Thank you for your comments, David, and thank you for your counsel over the years. Yes, sir. Only because we are on the website, maybe we could bring the mic to the gentleman. Thank you, Doug. Oh, he's right there, Doug.
Oh.
All right.
Well, Arthur Ulrich, shareholder. I bought the stock in the year 2000, and the dividend is exactly the same as it was at that time. Do you have any plans to raise the dividend? It's now one tenth of 1%.
Yes, it's an excellent question. We think the best way to get value back to our shareholders in that way is more through a share buyback than it would be a dividends program. I think, especially going back to 2001 or 2002, I think the company has been very consistent about its message. The excess cash coming out of the business, we've consistently felt needs to be reinvested back in the business in order to grow. In 2003, our stock price was $12 a share the day before we made the announcement of the Calvin Klein transaction. Today, it's $110 plus. I think that strategy has worked for us as we go forward. We also recognize that today we are a different company than we were in 2001.
We need to look at how best as our balance sheet gets right-sized, our debt has come down, how best to take that free cash flow and positively invest it for the shareholders, either back into our business. If we don't have the growth vehicles in front of us to drive the top line, we recognize that our responsibility is to return those dollars back to the shareholders in the form of either stock buybacks or dividends. At this point in time, given the growth that we see in front of us, we think the best use of our capital would be to continue to reinvest back into our business with a disciplined share buyback program as a complement to it at this time. We don't have the intention of raising our dividend in the near term. Thank you.
There being no other questions, I've been informed that the voting has concluded, and I would ask Michelle O'Donnell, our Assistant Secretary of the company, to read the results of the vote. Michelle?
The Inspector of Election has certified to the results of the matters voted upon at this 2015 annual meeting of stockholders. The certification, which will be appended to the minutes of this meeting, provides in part that the annual meeting was held pursuant to notice duly given. The inspector was sworn to execute faithfully the duties of Inspector of Election with strict impartiality and according to the best of her ability. There were present in person or by proxy, holders of 68,819,298 shares of common stock, or 83.5% of the shares eligible to be voted at the meeting. A quorum for all purposes was present at the meeting. Each of the 11 nominees for director received the majority of the votes cast and were declared to be duly elected for a term of one year.
The proposal to approve the company's 2006 Stock Incentive Plan, as amended, was approved by 93.7% of the votes cast and was declared to have been duly adopted. The advisory proposal to approve the compensation paid to our named executives was approved by 96% of the votes cast and was declared to have been duly adopted. The resolution ratifying the appointment of Ernst & Young LLP as auditors for the fiscal year ending January 31st, 2016, received an affirmative vote of a majority of the shares present and was declared to have been duly adopted.
Thank you, Michelle, and thank you for all your hard work in preparing and getting this meeting organized. That concluding all the business matters in front of the shareholders, I thank you all for coming. I thank you all for your support. The meeting is adjourned. Everyone have a great day. Thank you.