replay of this call. The information being made available includes forward looking statements that reflect PDH's view as of June 1, 2015, of future events and financial performance. These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is the subject of this call.
These risks and uncertainties include PBH'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. PBH 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 are included in the referenced 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 am 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 are Mike Schafer, our Chief Financial Officer Dana Perelman, our Treasurer and Senior Vice President on Business Development and Investor Relations. Overall, we were quite pleased with our results for the first quarter, which exceeded our earnings guidance by $0.10 per share. In the Q1 on a constant currency basis, revenues increased 3% and EPS grew 20%.
This outperformance was driven by strong underlying results in our international Calvin Klein and Tommy Hilfiger businesses. At the same time, we did see softness in our U. S. Calvin Klein and Tommy Hilfiger businesses where a strong U. S.
Dollar negatively impacted international tourist spending. Moving on to Calvin Klein. On a constant currency basis, revenues increased 5%, while operating earnings increased 25% in the Q1, driven by the strong performance of our international businesses. The Calvin Klein brand initiatives are taking hold and we continue to be pleased with our latest Justin Bieber spring campaign and our recently announced denim series featuring Kendall Jenner. We believe we are beginning to connect with a much younger consumer.
Moving into the Q2, our international businesses continue to post strong sales gains. International retail comp store sales are running ahead of plan in the second quarter and are trending up high single digits in Europe, while our Asia business is posting mid single digit increases. We are seeing particular strength in China, France, the U. K. And the Middle East.
In Europe, the Calvin Klein wholesale business continues to improve with our 2015 spring and fall order books excluding Russia up about 10% over the prior year. In North America in the Q2, our Calvin Klein retail comps are running flat and on plan. We are seeing strong sales in our permanent population stores located in tourist destination locations like Miami, Orlando, New York and Las Vegas are feeling the pressure from weaker international tourist traffic and spending. Speaking on some product initiatives, on Calvin Klein Underwear, globally we continue to drive our iconic basics, while delivering new elevated product. In men's, we have launched 2 new programs globally for spring, Intense Power and Air FX.
And we have seen very strong first quarter selling, which has continued into the 2nd quarter. Overall, the Calvin Klein North America men's underwear business has gained 300 basis points of market share in the Q1. As a reminder, intense power is what Justin Bieber was featured in and which is sold so well at retail. AirFX is more of a performance underwear, which taps into what is happening broadly in the active arena. In the women's area, our modern cotton logo product leverages the best of what Calvin Klein underwear does for men and translates it for women's with an active appeal.
Modern cotton continues to drive the improvement in our women's business in North America and Europe. Overall, our Calvin Klein North America women's intimate business has gained over 200 basis points of market share in the Q1 of 2015. We continue to see great performance from our elevated Black Label product across both men's and women's in Asia and Europe. Our women's bra business in Asia continues to outperform the competition through the tailored bra category in both the push up and solutions category. Overall sales for Asia in the Q1 ran up mid single digits at retail and that strong sales trend has continued into the Q2.
Moving into Calvin Klein Jeans. The new product that we have delivered, we are seeing a strong reaction from the consumer, particularly where we have installed new jeans shops. We continue to see men's outpace women's across North America and Europe, but women's continues to see an improvement. In North America, in the newly installed shops, we experienced a 25% retail sales increase over the prior year. 1st quarter overall AURs were up about 10% and that trend continues into the Q2 of 2015.
We are targeting 150 new gene shop installations in North America for fiscal 20 15. In Europe, we are in the early stages of a turnaround in the jeans business. We have significantly improved the quality level of our jeans line with better fabrics, trims and packaging. This has resulted in strong sell throughs and higher AURs in the Q1 with growth across all European markets excluding Europe excluding Russia. 2nd quarter jeans sales trends in Europe have continued to improve and are running up high single digits.
Moving to our Tommy Hilfiger business. Revenues on a constant currency basis increased 1% in the Q1. The increase was driven by solid performance in our international business, including a 2% increase in European retail comp store sales. In North America, revenues declined 1% resulting from a 3% decrease in retail comp store sales. As with Calvin Klein, we experienced a decline in international tourist traffic and spending in our Tommy U.
S. Stores. Operating earnings on a constant currency basis decreased 6% in the Q1 due to weak international tourist traffic in the U. S, which drove more promotional selling and higher markdowns. Moving into the 2nd quarter, we have seen significant improvement in retail comp store sales at Tommy have accelerated in the 2nd quarter with international comps up mid single digits and North America comp store sales up low single digits.
In Europe, we have seen a significant improvement on our men's side of the business across all key categories, in particular in our largest market Germany. We believe we continue outperform in men's and denim relative to the market and our women's wear business is also seeing improvement quarter to date. At wholesale, our Tommy European business continues to outperform the competition. As an indicator, our 2015 full year European order books excluding Russia are running up about 5% for the year. The strongest performing regions continue to be Germany, France and the Middle East.
Moving to our heritage business. 1st quarter revenues for the heritage business increased 5%, while operating earnings increased $5,000,000 over the prior year. This increase is principally driven by a shift in the timing of shipments into the Q1 of 2015 from the Q2 of this year and also driven by a strong retail comp store increase for our Van Usen business of about 14%. Our heritage sportswear business continues to perform very well both at wholesale and retail. We expect that our dress shirt business will continue to underperform through the first half of twenty fifteen.
However, we believe that this business will significantly improve in the second half of the year. Finally, we were very pleased to announce a $500,000,000 3 year stock buyback program, which reflects our confidence in our ability to generate strong free cash flow. Our first priority will be to continue to strategically invest in our 2 global powerhouse brands in order to fully maximize our organic growth opportunities. That said, given our strong balance sheet and growing free cash flow, we which we estimate to be up $450,000,000 in 2015, we are confident that we have the financial flexibility to 1, acquire and take more direct ownership in certain Calvin Klein and Tommy Hilfiger licensed businesses, continue to pay down debt and return capital to our shareholders through our new stock buyback program. With that, I'm going to turn it over to Mike Schaeffer, our CFO to quantify further some of these results.
Thanks, Manny. The comments I'm about to make are based on non GAAP results and reconciled in our press release. On a constant currency basis, revenue for the Q1 was up 3% versus the prior year and ahead of our guidance. Driving revenues was our Calvin Klein business, which delivered a 5% increase over the prior year fueled by an 8% increase in our Calvin Klein International business with comps of 10% benefiting in part from the timing of Chinese New Year. On a normalized basis, international comps were mid single digits.
Also favorably impacting the current quarter at Calvin Klein was the timing of wholesale shipments. Our Calvin Klein strategies are taking hold and we are seeing improved performance, particularly in our international businesses. Our heritage business revenues were up 5% also ahead of plan, but heavily influenced by earlier than planned wholesale shipments. Tommy Hilfiger revenues were up 1% and misplanned due to softness in the U. S.
Where a strong dollar negatively impacted international tourist spending. Earnings per share for the Q1 was $1.50 and included a $0.27 negative impact related to foreign currency and expected weakness in our Russian business. Excluding this negative impact, EPS would have increased 20% over the prior year. Our quarter 1 EPS was $0.10 ahead of the top end of our guidance. The $0.10 beat versus our guidance was driven by $0.02 of taxes, dollars 0.02 of favorable foreign currency and $0.06 related to the business performance, which was predominantly Calvin Klein and favorably impacted by the timing of shipments.
For the full year 2015, we raised our guidance and are now projected earnings per share at $6.85 to $6.95 If we exclude a negative impact related to foreign currency and weakness in our Russian business of $1.25 our earnings per share growth is projected to be 11% to 12% over the prior year. Overall, we are projecting revenues of approximately $8,000,000,000 which includes a negative impact of about $500,000,000 related to foreign currency. On a constant currency basis, we are projecting overall revenues to increase 3%. Overall, operating margins are expected to increase about 20 to 30 basis points, excluding a negative impact of about 60 basis points due to foreign currency. Driving the growth when excluding foreign currency is the continued improvement in the Calvin Klein business, which is projecting revenues to grow 6% on a constant currency basis.
We are also planning Calvin Klein operating margins to increase 70 to 80 basis points, excluding the negative impact of approximately 30 basis points of FX. Tommy Hilfiger revenues are planned to increase 3% on a constant currency basis with operating margins planned slightly down, excluding a negative impact of approximately 80 basis points of FX. Our heritage business is planned to have a revenue decrease of 3% due mostly our exiting of the Izod retail business in 2015. Operating margins in our heritage business are planned to increase about 60 to 80 basis points driven by the second half planned turnaround of our dress shirt business. The impact of foreign currency on our heritage businesses is relatively immaterial.
Interest expense for the year is planned to be between $100,000,000 $125,000,000 compared to the prior year of $139,000,000 due to the average lower debt balances. Also favorably impacting interest for 2015 is the debt refinancing we completed in the second half of last year's Q1. We currently expect to generate approximately $450,000,000 of free cash flow in 2015, which will be used to pay down debt of about dollars 1,000,000 and allow for license buybacks and stock repurchases under our newly announced plan. Our tax rate for the year is planned at about 21.5% to 22% which is in line with the prior year. Our revenue and earnings comparisons for the Q2 are heavily impacted by launches in the prior year for our Calvin Klein underwear business, which had a major repackaging initiative in last year's Q2 as well as the initial selling of Izodak Kohl's in our heritage businesses.
In addition, we saw earlier shipments in this year's Q1 versus the prior year and recognized about 25 shipments in quarter 1 that shipped in quarter 2 of last year. These launches were coupled with earlier shipments are driving flat overall revenues in the Q2 on a constant currency basis. By business, we're estimating 2nd quarter revenues on a constant currency basis to increase 3% for Tommy, flat for Calvin and to decrease 8% for Heritage. 2nd quarter earnings per share is planned at $1.25 to $1.30 and includes approximately 0.30 dollars of estimated negative impact for foreign currency and the decline in our Russia business. Excluding this negative impact, EPS is projected to increase 3% to 6% over the prior year.
Interest expense is projected to be $30,000,000 and taxes in the quarter about 19% to 20%. And with that, we'll open it up for questions.
Thank you. And we'll go first to Bob Drbul with Nomura.
Good morning. Good morning, Bob. I guess Manny, when you think about the I guess the jeans business and some of the performance that we're seeing and the improved performance that we're seeing, When you look at the women's business, can you just talk a little bit about what else needs to happen there sort of like what you're most optimistic about in terms of the overall jeans business, but like how can the women's business continue to improve? What needs to happen there?
Sure, Bob. I think the thing I'm most optimistic is about the product improvements that I see in the pipeline. I think we've consistently talked about the fact that we felt that the men's product initiatives around quality fit were 6 months ahead of where the women's initiatives were. So I really feel as we get into the second half of this year into 2017 into 2016 as well that you'll see more dramatic improvement in that business because of those initiatives. In addition, I think when you think about the overall market, the women's denim category has been under just greater pressure around this whole active athleisure trend in the market.
So I think that's also pressured the women's business in a much stronger way. And I guess is really we're starting to really better understand our consumer on the women's side, side, what drives their purchasing decisions. And I think that our marketing campaigns are really starting to align with that, particularly with the Kendall Jenner campaign that just kicked off in the last month or 2. I think that's really starting to connect even more directly with our female consumer. So I feel very optimistic about what's going on, but clearly we're seeing bigger improvements on the men's side
of the business today.
And Manny with the Kendall Jenner marketing, do you have any plans to include Caitlyn Jenner in any of the marketing programs?
No, Bob. Thanks.
Okay. And then just one more question. On when you think about 2016 and you look at the foreign exchange pressures, can you just give us an update on how you're thinking about pricing and sort of some of the transactional pressures as we look forward?
Sure. We're raising prices. I think now the question is to what degree, what opportunity is what opportunity that presents, what's the competitive positions that are out there. I think there's 2 things that go on. First is you raise ticket prices, sit down with your retail partners and that's what we're really in significant discussions with our key retail partners about what they're seeing and where we are.
And then off of that particularly in North America, but around the globe in Europe in particular, how much do we have to promote off of that and how much regular price selling will come off of that. So there's a number of levers to press and we're really going to determine that over the next 3 to 6 months as it plays itself out and we're trying to give ourselves as much flexibility as we go forward. We'll also be testing in fall and holiday some price increases as we go forward to see how the market is receiving that. Competitively, we know a number of our competitors particularly in Europe are starting to move prices up for fall. We're following that trend and watching it very carefully.
But we also want to make sure as a market leader and in a turnaround situation with Calvin Klein, market share gains are critical to us. So we want to make sure that we're not overpricing ourselves in the market. So we're really trying to bring a balance to it. But clearly, there will be an opportunity to raise prices in the spring 2016 time frame given what's going on competitively.
Right. Thank you very much, Mig.
And we'll go next to David Glick with Buckingham Research Group.
Thank you. Manny, just to start off on the Tommy Hilfiger business. Obviously, the Calvin business had a very strong quarter, a little softer on the Hilfiger side. You talked about some of the issues in North America. What's driving the improvement in Q2?
And how are you feeling about the potential to reaccelerate the Hillfigure growth as you close 2015 and head into 2016?
I think a couple of things David. On the let's talk about Europe first. I think we have on the Tommy side of the business in our own retail stores each month in the Q1 as we move through the quarter the retail comp performance improved. And as we've moved into May and just finished the month of May that was by far the strongest month. So I think we're really starting to see improvements in the European overall environment.
Our meds business is really working very strongly both on the sportswear side and the denim side of the men's category. And I think we're just we're getting paid real dividends given our strong position in the market. Inventories are very clean. It's not a need to be overly promotional. So in Europe, given what's going on in the external environment, Tommy's significant exposure to that European market is by far our largest market.
For Tommy, it's about 45% of our sales. So it is has a much bigger impact to the business as we went through what I would describe in 2014 a softer kind of environment second half of the year into the beginning of this year. That seems the overall economic backdrop seems to be improving and our business seems to be capturing that. Hopefully that continues. In North America, I think we are going to potentially struggle with this international tourist spending.
The Tommy business has such a strong following internationally in the United States That business I think was particularly in our biggest most profitable stores we're seeing traffic trends down in the 8% to 10% area in the Tommy Hilfiger business. And I think that although in the Q2 that trend improved and I think some of that has to do we believe with the World Cup that we were up against last year where we saw a softer second quarter. I think that that trend will probably continue into the Q3 of this year. As we get into the Q4, which is by far our largest quarter for our retail business, The comparisons start to get easier. The differential from a currency point of view also starts to balance out a little bit.
So we're hopeful as we get into the late Q3 and into Q4 that that trend will start to improve. We've gotten a little bit more promotional in those tourist destination locations, and we've seen a reaction to that and have been able to drive the comps on a very profitable basis there. So from the Q1 where our retail comps in the U. S. North America were down about 3%, we're actually seeing them up 2% to 3% in the 2nd quarter.
So hopefully that's a sign that we're starting to see an inflection point, but we'll have to watch it for a little bit more data as we move forward.
And the timing of this improvement in Europe Manny, you have I guess you'll be working this month with your European wholesale partners. So does that give you an opportunity potentially to see an acceleration in your wholesale order book for this next booking period?
Yes. We go on sale in about 2 weeks. I think there's in general, I would say, the European market, there's more optimism at the consumer level. And I guess you have to go country by country. There's a story everywhere.
But I think clearly the backdrop is better today than it was 6 months ago. So we are more optimistic as we go forward. The retailers are still being cautious I believe as they buy. Our at once business both in Calvin and Tommy Europe continues to be very strong. We've gotten behind those businesses with inventory even more significantly in order to try to drive opportunities that we see.
So clearly, I think there is opportunity in the second half of the year and we're more optimistic about the business in general in Europe than we've been for the last 9 months.
And then one last follow-up on the transactional pressure you're going to be feeling into next year. You talked about pricing. Are there other strategies you can employ such as pushing down AUCs maybe controlling SG and A so that you could potentially offset perhaps up to half of that transactional pressure?
Yes. I think that's a good call out and I should have mentioned that on the last question is there's 3 key areas. 1 is raising prices and doing it in
a very
thoughtful, but aggressive way. 2 is looking at the supply chain from both logistically and also with our partnership with our key sourcing partners vendor base throughout the world. We believe there's opportunities on the cost side of that business and we're also looking at potential expense savings that might exist. We're targeting to try and offset 50% of that transactional problem with those 3 in those three areas. So we'll see where that takes us at this point.
But again, it's a little too early to get ahead of it, But we're feeling good about the initiatives we have in place and also the way the market seems to be addressing the issue. There's a clear understanding that retail prices need to move up and that's what we seem to what seems to be happening.
Great. Thank you very much. Good luck.
And we'll go next to Joan Pason with Barclays.
Hi, good morning.
Good morning, Joan.
So could you talk maybe a little bit Manny about the Calvin Klein margin expansion because there was some, I think strong margin expansion there despite the currency headwinds particularly internationally? And based on how the business is trending at this point, are your expectations changing at all for how the overall Calvin EBIT margin could ultimately look, but also how the European margins could ramp up?
Sure. I think the European just purely on an operating basis, operating margin basis, I think the biggest opportunity is Europe to see a significant improvement in the Calvin Klein margins. We have a $500,000,000 Calvin Klein European business that is marginally profitable today from money losing over the last 2 years. So our long term target in Europe is to get that to about a 10% operating margin within the next 4 years. I think we're on track to deliver against that.
The currency headwinds are just causing us some caution on that as we continue to look at the pressures that it's going to put from a costing point of view. But clearly there's opportunities from pricing and better sell throughs to significantly improve the Calvin Klein European operating margins. Put it into perspective, Tommy Hilfiger European operating margins for full year of 2014 were at 14% operating margins. So it's clearly with a well run business of some scale, there should be the opportunity to get to double digit operating margins in Europe. Overall, I think we continue to talk about 15% operating margins for the Calvin Klein business.
And as we bring in some of the licensing businesses, which carry almost 100 percent operating margins today convert those into much larger direct control businesses in those parts of the world, you would expect that our operating margins in Latin America and Asia should be in the high teens as we go forward. So again, I think there continues to be that opportunity and overall goal to get our operating margins in Calvin Klein to about 15% and then take it from there.
Okay, great. And then in the context of the overall denim category in North America, it sounds like maybe trends are improving a little bit. So could you talk about what you're seeing in the category more broadly and how Calvin Klein jeans compare to the rest of the marketplace?
Sure. I think on the men's side, you see the category has improved. The negatives have now turned to low positives. So the bleeding has stopped and I think the business feels better. I think retailers have planned it more tightly.
So it's becoming a category that should be nicely profitable because there's not a real issue for us. Real focus on fall with all the retailers on the denim area. So I think you're going to see a lot of marketing around denim and by retailers and the wholesale community. And I think there's appetite on the consumer side in men's to really refill their closets, some real fashion statements that are going on there that I think that category overall will start to improve over the next 2 or 3 years and see significant improvement in 2015. Calvin Men's Business in particular, I think I quoted the numbers, we're seeing double digit increases.
So clearly, we're gaining market share. But we have to be honest with ourselves, our market share we've lost about 50% of our market share from where we were 4 or 5 years ago. So really recovering that, getting new doors that are opening in North America and larger footprints in some of the key doors in North America, I think will be critical as that business goes forward. On the women's side, I think the improvement from a category point of view has not been as strong as in the men's side, but it has been an improvement. I think it's kind of flattish at this point.
The best data that I see, you hear different things when you talk to different retailers. But I think there I think the pressure from the activewear athleisure side has been more intense on the women's side. And I think we're really seeing that business start to turn around on the women's side, but I think it's going to be behind the men's turnaround as we go forward. Our women's business, we're really seeing a lot of improvement. We're seeing it in denim bottoms, but we're also seeing it in non denim bottoms with the jeans construction.
So really seeing a big change there and we're trying to really take advantage of that both from a supply chain and a logistics point of view to really capture some of that innovation that's going on, on the women's side of the floor. So it's better than it's been, but I still wouldn't characterize the jeans, denim area as a hot category at this point. It's just not bleeding like it was and it seems to actually be slightly growing.
Great. Thank you.
We'll go next to Erinn Murphy with Piper Jaffray.
Great. Thanks. Good morning. I guess Manny on the buyback, I do believe this is the first buyback you guys have done since the end of 2007. And can you just talk about your philosophy behind that?
And then does that change the interest in pursuing bringing back some of the global licenses? And then just maybe remind us where you're at from a priority perspective on some of those international license takebacks? Thank you.
Sure. I think is 1, philosophically, I don't think anything has really changed with the one caveat that over the last 8, 27 months since the acquisition of Wanaco, we've paid back about $1,000,000,000 in debt. And I think that's just given us more financial flexibility as we've gone forward. We really look at it as a balanced approach to return capital to our shareholders as appropriate and to also take advantage of what we see as the growth both in our Calvin and Tommy Hilfiger businesses. The opportunity to bring back license business, we think is our number one priority that we really have to go after.
The way that lays itself out given the nature of the nature and length of some of our license agreements, the buyback calls that we have in those license agreements, I think the triggering point for that is really 2016 that you really would see an impact from that. So we're working on that diligently. The opportunities from a geographic point of view continue to be Asia and to some degree Latin America. Those are both growth regions for both brands, both Calvin and Tommy and they give us the greatest opportunity to take advantage of our operating platforms in those regions to really see some outsized growth as we move forward. So that would be our priorities.
We're also looking at some product categories that would make some sense to either bring in house directly or to take a joint venture ownership position in those businesses. Depending on the category and the region what vehicle would make the most sense. But there's been no change in that being our number one strategic priority along with investing in the organic growth of the 2 Global Powerhouse brands.
Great. That's very helpful. And if I could just add a follow-up on Europe to one of your former responses. Can you just elaborate a little bit more on what you're seeing in Southern Europe in particular? I guess I'm curious in Italy just given how Calvin Index is there.
Are you seeing pressure continue from doors being closed from some of the Ma and Pa independent retailers there? Would love an update there. Thanks.
Sure. I think Southern Europe so it's 2 big markets Italy and Spain. The Italian market continues to be soft. It's not as soft as it was. It's not as negative as it was the last 24 months.
So we're seeing a deceleration of the negative trends and I think a bottoming out of that region as that country's retail situation as we go forward. So we're starting to feel a little better about Italy. We're still not looking to make major investments there at this point. But I think we as the year progresses and we turn into 2016, we're optimistic that we can actually see some small increases as we go forward there and really stop the bleeding in that country. In Spain, which is our other big southern market, there's clearly been a change in the direction of the consumer spending habits there and we're seeing it with our biggest retail partner El Corte Ingles.
Our business in Spain is more of a wholesale or concession driven model. We have some stores, but really not that significant. It's really driven throughout Porte Ingles and that business has improved significantly over the last 6 months. We're actually seeing the business in our order book grow in Spain and I would expect that that would continue to happen. We're seeing it in the mid single digit kind of range.
So I think the bleeding there has stopped and that gives us that's been a big market particularly for Calvin and Tommy. So I think hopefully as we get into 2016, we should start to see improvement there as well.
Great. Thank you guys and congrats on the great Q1.
Thanks. Thanks.
And we'll go next to Eric Tracy with Janney Capital.
Hey, guys. Good morning. I guess, if I could just a quick follow-up as to the timing of the pricing increase. It sounds like spring 2016, but maybe talk through when some of the transactional impact to currency hits when the hedges potentially roll off? Is it a lag?
Or should it be relatively aligned
with some of those moves to offset?
Well, look, I think you're going to see 4th quarter as the euro just to remind everyone, the euro in particular fell out of bed probably September 2014. So as we were buying contracts at that point and hedging as we go forward, that's kind of when I think you'll start to see some of the impacts. So we've talked about that this year, fiscal 2015, that 70% or thereabouts of the foreign currency hit was translation and transaction was about 30%, but that 30% really sat predominantly in the second half of twenty fifteen. So there is going to be some pressure of 3rd, Q4. We are trying to increase some prices there and to adjust some costing there.
But I think that's where you'll start to see some of the pressure associated with it and not be able to really significantly offset some of the cost increases since they happen so quickly at that point. So early fall deliveries, we're not touching our retail prices at this point. As we get into resort deliveries that hit November, December, I think there we are trying to really change some of our pricing as we move forward and then to be even more aggressive as we get into 125 deliveries.
Okay. And then switching gears a bit. You discussed the pulling in of the licenses. Manny, is there anything beyond just the timing of the contracts, but is there anything from a management capacity perspective that would limit or prohibit the ability to pull those in? And I guess just as it relates to all the investments and moves being made on the CK business, do you feel like there's any sort of constraints that would limit the ability to do that?
I think there is look there is just acquisitions bringing them in house whether they're $2,000,000,000 acquisitions or $200,000,000 acquisitions. There's a level of integration that goes on that size matters, but it's not necessarily it's not geometric. So there is a capacity issue and that's one of the reasons I don't see us being able to execute all of these in a 12 or 18 month period. These are going to have to be stretched out over a 3 to 4 year period beyond when the contracts come up. So clearly, we're looking at the opportunities that we feel we can execute best and that would deliver the most strategically and from a financial point of view.
So we're doing that together with our management teams. And I think it's important for us to be diligent and prudent about how we bring these in. That will be the key to success. I think rushing, especially where we have strong strategic partners in these regions, it's not like these are areas that are being mismanaged or the brand is not being treated appropriately or not seeing appropriate growth, this is really an opportunity to just capture more of that growth internally. So we're not under the pressure of we have a bad licensee or a bad strategic partner and we have to take them out.
So I think the urgency that that might have created is not there. We clearly had that situation in India and Australia and South America with the Wanaco acquisition and we moved very quickly to deal with that by replacing licensees or taking more direct control of those businesses. So I think that answers the question.
Absolutely. Perfect. Thanks guys. Best of luck.
We'll go next to Michael Binetti with UBS.
Good morning, guys. Congrats on a great quarter. May I just ask you some back of the napkin math here on the guidance? It looks like you're expecting Calvin Klein brand revenue growth to accelerate to high single digits in the back half of the year versus a low single digit growth rate in the first half blended to get to your 6% constant currency guidance for the year. Could you maybe talk through some of the components of what accelerates in the back half from the trends that you just mentioned, which are actually already very good?
So I'm just curious what you see accelerating in the second half?
Okay. Hold on. I want to make sure your math is right as opposed to I'm just taking a look at some schedules.
Sorry for
the math quiz.
I'll take a second as I do that. Yes, I got you. Sorry guys. Yes, I think what we are seeing really is second half of the year, not necessarily second quarter, but second half of the year, we're seeing a significant improvement in business. We're seeing the CapEx line underwear business really to significantly start to grow particularly on the women's side of the business.
The modern cotton business really starts to take off second half of the business. Our bra business in general, the opportunity getting our supply chain in order to meet the demand as we start to roll those new programs out with our key retail partners, I think we feel very strongly about that and that's what's driving a big piece of the growth. Continuation of the jeans progression as we move forward is really starting to pay off. We have some significant store openings and throughout Asia that's driving the business. And as we get into the second half of the year, we're not up against a number of the launches that we had last year from a wholesale point of view.
We have a significant fixture sell in and that's first half of 2014 had a lot of fixture sell ins. We saw the improvement in the Calvin Klein businesses because of that and we're up against it, but still putting up increases. As we get into the second half of the year, that fixture fill in is behind us both in North America and in Europe. And I think our we really think there's a big opportunity for our direct EDI replenishment business, never out of stock businesses particularly in underwear, but also basic denim categories that we should be able to capture on the Calvin Klein side of the businesses. So that's really what's driving it.
We think the big opportunity is really 3rd Q4.
Okay. Thanks. So and as a follow-up, having proven your ability to do math quickly, I'll follow-up with that. If you add back the $25,000,000 shift that implies the 2nd quarter revenue growth is maybe 1.5% and you're telling us that most of the same store sales from the businesses around the world are running better than that for maybe everybody except for Calvin Klein North America. So it seems to imply the guidance is set for Q2 below the trends you're seeing today.
Maybe you could just elaborate on why you wanted to bake in some conservatism there?
Well, I have 2 things. I think is I tried to be as we always try to be as transparent as possible. And I think you're right. I think the May trends overall are better than the implied retail sales guidance that we're using for the quarter, but it's 1 month. And to be honest, it's been it's just too early to really get too far ahead of ourselves.
But if the trends were to continue, obviously, if the kind of sales retail comps that we're seeing right now continue is clearly upside in the Q2 and obviously for the year as well. But I'd like to see a little bit more of that as we go forward. So we'll see how that all plays itself up. But yet clearly there is an opportunity as we go forward. But my back of the envelope math also is that that piece for the Calvin Klein side of the business is worth about 2.5%.
So just to put it in perspective the timing of the shipments.
Thanks again. Great quarter.
Thank you.
And we'll go next to John Kernan with Cowen.
Hey, good morning guys. Congrats on some of the green shoots you seem to be seeing in Calvin Klein Europe. But just coming back here to the States, I think Manny you said that North America you're seeing 25% retail sales increases at some of the new gene shops that you've opened and that there's 150 planned for 2015. Over the next few years, how many more of those shops do you think you can open?
I think as we move I think for the next 2 years somewhere in the neighborhood of about 100 shops a year. I think what's more important is that we need to get bigger square foot presentations particularly in the top 150 doors in the United States. If you were to walk the floors in some of the best department stores in the United States and when you walk into Macy's or if you walk into a Bauch's or Dillard's and look at the Calvin Klein presentation, I think it's as strong as any brand in the market. But when I compare our presentation in men's sportswear, tailored clothing, dress shirts with our jeans presentation, I would say it's 25% of the presentation that we get in sportswear on jeans. And it doesn't that's not logical if we execute.
We should be very with a brand like Calvin with its heritage and jeans on the men's side, our jeans shop should be as big as our men's sportswear shops around the country. And what and they're currently running about 25% of that size. So performance will dictate getting more square footage taking it from they're not building bigger stores. It's going to be taking away step by step from some of our competitors. But over the last 5 years, we've given it up.
It's the same thing on the women's side of the floor. If you look at the amount of space that G III has captured in the major department stores in the United States with Calvin Klein and the kind of growth that they've experienced it's in some of the other categories. It's more like 10% or 15%. So we need to although we've gotten position and now we're in the game and we've got the we have presentation to compete, we clearly have an opportunity to grow the square footage in North America. And that is going to be the key to driving the success of the Calvin Klein business in Jeans in this part of the world.
All right. That's helpful. And then you've seen a lot of ebbs and flows to the global consumer. Given the significant move we've seen in FX rate, we start lapping that in the holiday of this year. Do you think some of that tourist consumer comes back?
Or do you think the exchange rates relative to the dollar
Yes. I want to echo that. I'm not sure if it comes back. What I think happens is it reaches equilibrium. So that's all.
And I want to just be at this level, when I talked about that the Tommy business under some more pressure than even the Calvin business and with comps in these tourist destination locations and Tommy down 8% let's say, Those stores are still some of the most are the most profitable businesses of the entire chain. So I just want to be careful when we use words like impair. This is still a huge significantly profitable business. There may be some rightsizing as currencies are under pressure. But I think that levels out.
And as you get that behind you, unless there's another drop in currencies again, but I think at this level, I think that consumer finds their footing. And I think the international tourist that travels in the United States consistently. And I think we should be in a better profit position because we should be better in 2016, late 2015 in managing the flow of the inventory into those stores getting it right less need to be maybe as promotional as we were in the Q1 of this year. So I think that presents an opportunity as well.
Okay. And if I can just sneak one more in for Mike. Will you only plan to buy free cash or shares back with free cash flow after debt pay down? The leverage ratio if we look at it on the balance sheet is coming down pretty significantly and you've maintained leverage on the balance sheet for a long time now. So is the share buyback only going to get done with cash flow that's left after debt pay down?
Or would you potentially keep the leverage ratio elevated
to buybacks and SPAC?
So right now what we're talking about is generating $450,000,000 of cash flow and we're talking about paying $350,000,000 down in debt. And then with that balance that's left, we'll we have opportunities to look at license CapEx and look at buying shares.
Okay. All right.
And I think as we look out, I think the point being is after we pay down this $350,000,000 of debt in 2015, I think the leverage ratio is at a point where we are more comfortable than we are today at the current Sounds good. Thanks
Sounds clear. Thanks guys.
And we'll go next to Dave Wiener with Deutsche Bank.
Great. Good morning everyone. So just two questions if I may. Number 1, I was hoping Manny you could talk about what you're seeing in the U. S.
Department stores. There's been a lot of talk about maybe a bump up in inventories there over the last couple of months probably in part due to the port situation. But just kind of your view and whether if you have seen higher inventories, if you think those are coming down and are normalizing? And then also if you could talk a little bit about your accessories business. It's something that you guys don't talk about that often.
So I'm curious kind of where you are in terms of a percentage of your business and how you think that can help your revenue and margin profile going forward? Thanks.
I think inventory levels, it's really a story retailer by retailer. I think some of the places where you've seen softer business that may have been more impacted by the international tours, I think that those retailers are aggressively moving to get inventories down. We don't really have any bulge in inventory sitting anywhere. We've been very diligent about moving goods. We haven't off our flow of goods hasn't really been impacted by the port situation.
We got ahead of that and really we're moving goods to the Northeast and are really now just getting back to our normal balance of how goods are coming into the country. So we don't specifically see it. I think there are look I think it continues to be promotional at retail. I think it's going to be promotional Father's Day and as we get into June July. So nothing is really changing.
But I don't see anything that would directly impact our business or the trends we're seeing at retail. So I think it's a little higher in some places than people would like, but I think they're taking steps to deal with it. And I so I feel pretty good about that overall. Accessories, we kind of we always tend to just pull that together with our apparel businesses when we talk about comps and we talk about trends only because we don't want to confuse people and start talking about big increases on what I would say 3 years ago relatively small numbers, but has become big businesses for us over the last three years both at wholesale here in North America, our business is growing double digit with department stores with both Calvin and our Tommy Hilfiger business with department stores. And in our own retail stores, we've really grown the square footage associated with accessories.
And that business has been healthy for us overall. I think that the accessories in general, I think there is what I would say is the category is not as robust. And I'm not speaking now about our business. I'm speaking just in general terms. I don't think we're as significantly exposed as some of our competitors to that category.
We have a big healthy business there that's doing well. And I think there's runway in growth for us, particularly as we're price positioned in the market. But I think there's that kind of growth that's been experienced the last 4 or 5 years, I think that growth be it watches and jewelry or be it handbags directly, I think it's starting to level out in general. Still a healthy business as long as you don't get into inventory problems and margins, particularly in a business like for PVH, Calvin and Tommy, where clearly accessory margins are much higher than our apparel margins. And we're an apparel company that has a complementary accessory business as opposed to an accessory business that's trying to develop some type of a lifestyle brand or apparel business.
I think that's a much harder formula to navigate given the high operating margins in accessory versus probably half those kind of margins when you talk about apparel.
That's really helpful. If I may, can I just sneak in one other quick one? You had also commented that you expect an improvement in the dress shirt business in the second half of the year. Could you just talk a little bit about is that based on some new product or something else kind of what's the expectation there?
Okay. There is some exciting new product that's going on there, But we're not counting on that huge increases. This whole flex collar technology that's coming out, we haven't really spoken about it that significantly. It's really a second half launch and I'll probably talk about it on the second quarter call. It has had very good sell ins and we have to see now and we're testing it with the consumer to the reaction, but we think it has a real chance to have some legs to the business at slightly higher margins and price points.
The what we are counting on for the turnaround of the business is just getting the inventories completely right sized and getting the business right sized. If you recall, we had a very tough Q3 in dress shirts and a disaster in the Q4. So to be honest, all we're counting on is that we're going to run the business as we normally do and comparatively you'll see an improvement particularly in the Q4.
Very helpful. Thank you.
Given the time frame, this is going to be our last question operator.
Okay. We'll take our final question from Eric Theodor with Wunderlich.
Congratulations on a good quarter. Thanks for squeezing me in. Could you talk a little bit about the licensing business? I see that was up on a year over year basis even with the currency. And could you talk about where you are in the evolution in the off price channel?
I know you have been reducing your dependence upon that. Thank you.
Eric, you just broke up the last piece
of that about the dependence. Just say that again.
On the off price channel, I know you've been cutting back on the off price channel. And kind of where are you with that evolution? Where do you want to
be in the off price channel? Okay. Let's talk about the licensing business. It was healthy both for Calvin and for Tommy. The Tommy business just continued good performance with a number of key businesses, particularly internationally is where we really saw it.
Our Asia business continuing to do well and our South America business doing well. On the Calvin side, the real growth driver has been G III. That continues. Also the men's tailored side of the business for both Calvin and Tommy continues to do very well for us. That's Peerless and MallCraft.
G III on the women's side, they'll speak probably tomorrow I think on their call. So they'll put more color on that. But we're seeing really healthy growth there. They are a great licensing partner and just do a fantastic job for us. On the off price channel, we talked about it.
Look, the Wanaco business was overly dependent on the business in Europe and North America. In Europe, we are exactly where we want to be and the only business being done in the off price channel is selling off clearance at the end of the season, which is normal as opposed to selling in business in season and treating it as if it was a department store account. That's behind it. On the underwear business, we're exactly where we want to be from a channel distribution diversification, very well balanced. 80% of our business is being done in the regular price channel of distribution exactly like we would want it to be, premium positioning both in North America and Europe.
That's very healthy. The jeans business has continued to be a story. We have the in North America, we're at the right sales level at this point as we particularly turn into the second half of this year, so the comparisons will be fine. What we really need to do is to grow the department store business to a healthier level. So I think there the financial hits that we've had to take by eliminating profitable off price sales that is behind us particularly as we get out of this Q1.
And that's completely behind us and shouldn't be a real topic of discussion as we go forward. So feel good about where we are. And I think as we grow that jeans regular price business, we'll be it will be in balance with the rest of the Calvin Klein businesses over the next 2 years.
Great. Thank you.
Okay. Thanks, Eric. I'd like to thank everybody for joining us. We look forward to speaking with you at our Q2 earnings call, which will be in August late August of this year. Everyone enjoy their summer and have a great day.
Bye bye.
Again, that does conclude today's presentation. We thank you for your participation.