Mr. Chirico concluded, “I am pleased that the Warnaco integration is progressing well and we have achieved numerous milestones to date. 2014 continues to represent a year of two stories - the first half is pressured by our strategic investments, while Fall 2014 will be the first season we offer product by our newly established design and sourcing teams and presented in an enhanced retail environment. Despite first half pressures, we are well-positioned and have not changed our outlook for the second half of the year, for which we expect earnings per share to increase approximately 20% on a non-GAAP basis over last year’s second half. The power of our brands, led by Calvin Klein and Tommy Hilfiger, remains strong, and we believe that the investments we make during 2014 and the financial flexibility achieved by our continued debt repayment will enable us to capitalize on growth opportunities over the long-term.”
First Quarter Business Review:
Revenue in the Calvin Klein business increased 4% to $665 million from $638 million on a non-GAAP basis in the prior year. On a GAAP basis, total Calvin Klein revenue increased 9% as compared to the prior year revenue of $608 million, which was $30 million lower than revenue on a non-GAAP basis due to the sales returns discussed above. Revenue for the North American business increased 3%, driven by an additional ten days of operations for the businesses acquired with Warnaco on February 13, 2013, along with modest growth in both the wholesale and retail businesses. The Company’s North America retail comparable store sales were flat.The Calvin Klein international business, which is principally comprised of the Asia, Europe and Brazil businesses acquired with Warnaco, posted revenue of $328 million, an increase of 6% on a non-GAAP basis, due principally to growth in Asia and the revenue for the additional ten days of operations in the first quarter of 2014 as discussed above. The absence in 2014 of the $30 million of sales returns discussed above resulted in a GAAP revenue increase for the Calvin Klein International business of 17% over prior year revenue of $280 million. The Company’s international retail comparable store sales declined 5%, primarily driven by the ongoing transitioning of the Europe jeans business and the absence of the Chinese New Year holiday in the first quarter of 2014. The jeans business in Europe remained under pressure due to the business’ concentration in Italy, where the economic environment remains weak, combined with the initiative to restructure the sales distribution mix. Royalty revenue of $45 million increased 13% in the first quarter, excluding a negative 10% impact related to the absence of royalty revenue from Warnaco in the current year, as the prior year’s first quarter royalty revenue of $44 million included $4 million from Warnaco for the ten days prior to the acquisition. Including such revenue from Warnaco in the prior year, royalty revenue increased 3%, primarily driven by strength in women’s apparel and handbags.