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Article by DailyStocks_admin    (10-22-08 04:23 AM)

The Daily Magic Formula Stock for 10/21/2008 is Phillips-Van Heusen Corp. According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Unless the context otherwise requires, the terms “we,” “our” or “us” refer to Phillips-Van Heusen Corporation and its subsidiaries.


Our fiscal years are based on the 52-53 week period ending on the Sunday closest to February 1 and are designated by the calendar year in which the fiscal year commences. References to a year are to our fiscal year, unless the context requires otherwise. Our 2007 year commenced on February 5, 2007 and ended on February 3, 2008; 2006 commenced on January 30, 2006 and ended on February 4, 2007; 2005 commenced on January 31, 2005 and ended on January 29, 2006.


We obtained the market and competitive position data used throughout this report from research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data and we do not make any representation as to the accuracy of such information.


References to the brand names Calvin Klein Collection, ck Calvin Klein, Calvin Klein, Van Heusen, IZOD, IZOD G, Eagle, Bass, G.H. Bass & Co., Geoffrey Beene, ARROW, City of London, Bugatti, BCBG Max Azria, BCBG Attitude, CHAPS, Sean John, Donald J. Trump Signature Collection, JOE Joseph Abboud, Kenneth Cole New York, Kenneth Cole Reaction, MICHAEL Michael Kors, Michael Kors Collection, DKNY, Tommy Hilfiger, Nautica, Perry Ellis Portfolio, Ted Baker, Ike Behar, Original Penguin, Jones New York, Hart Schaffner Marx, Valentino, Alara, Axist, John Henry, Zylos by George Machado, Gianfranco Ruffini, Studio by Fumagalli’s and Timberland and to other brand names in this report are to registered trademarks owned by us or licensed to us by third parties and are identified by italicizing the brand name.

References to our acquisition of CMI refer to our January 2008 acquisition of Confezioni Moda International S.r.L., which we refer to as “CMI.” CMI is the licensee of the Calvin Klein Collection apparel and accessories businesses.


References to our acquisition of Superba refer to our January 2007 acquisition of substantially all of the assets of Superba, Inc., a privately-held manufacturer and distributor of neckwear in the United States and Canada, which we refer to as “Superba.”


References to our acquisition of Arrow refer to our December 2004 acquisition of Cluett Peabody Resources Corporation and Cluett Peabody & Co., Inc., which companies we refer to collectively as “Arrow.”


References to our acquisition of Calvin Klein refer to our February 2003 acquisition of Calvin Klein, Inc. and certain affiliated companies, which companies we refer to collectively as “Calvin Klein.”


Overview


We are one of the largest apparel companies in the world, with a heritage dating back over 125 years. Our portfolio of brands includes our owned brands, Calvin Klein Collection, ck Calvin Klein, Calvin Klein, Van Heusen, IZOD, ARROW, G.H. Bass & Co., Bass and Eagle, and our licensed brands, Geoffrey Beene, BCBG Max Azria, BCBG Attitude, CHAPS, Sean John, Donald J. Trump Signature Collection, JOE Joseph Abboud, Kenneth Cole New York, Kenneth Cole Reaction, MICHAEL Michael Kors, Michael Kors Collection, DKNY, Tommy Hilfiger, Nautica, Perry Ellis Portfolio, Ted Baker, Ike Behar, Jones New York and Hart Schaffner Marx, as well as various private label brands . We design and market nationally recognized branded dress shirts, neckwear, sportswear and, to a lesser extent, footwear and other related products. Additionally, we license our owned brands over a broad range of products. We market our brands at multiple price points and across multiple channels of distribution, allowing us to provide products to a broad range of consumers, while minimizing competition among our brands and reducing our reliance on any one demographic group, merchandise preference or distribution channel. Our licensing activities, principally our Calvin Klein business, diversify our business model by providing us with a sizeable base of profitable licensing revenues.


We believe Calvin Klein is one of the best known designer names in the world and that the Calvin Klein brands— Calvin Klein Collection, ck Calvin Klein and Calvin Klein —provide us with the opportunity to market products both domestically and internationally at higher price points, in higher-end distribution channels and to different consumer groups than our other product offerings. Products sold under these brands are sold primarily under licenses and other arrangements. Since our acquisition of Calvin Klein in February 2003, we have used our core competencies to expand the product offerings under the Calvin Klein brands and to bring these new product offerings into additional channels of distribution. Calvin Klein designs and/or controls all design operations and product development for most of its licensees and oversees a worldwide marketing, advertising and promotions program for the Calvin Klein brands. We believe that maintaining control over design and advertising through Calvin Klein’s dedicated in-house teams plays a key role in the continued strength of the brands. Worldwide retail sales of products sold under the Calvin Klein brands were approximately $5.4 billion in 2007.


Our “heritage” business encompasses the design, sourcing and marketing of a varied selection of branded label dress shirts, neckwear, sportswear and footwear under our portfolio of brands, as well as the licensing of our owned brands (other than the Calvin Klein brands), for an assortment of products. We design, source and market substantially all of these products on a brand-by-brand basis, targeting distinct consumer demographics and lifestyles in an effort to minimize competition among our brands. Currently, we distribute our products at wholesale through more than 17,000 doors in national and regional department, mid-tier department, mass market, specialty and independent stores in the United States, Canada and Europe. Our wholesale business represents our core business, and we believe that it is the basis for our brand equity. As a complement to our wholesale business, we also market our products directly to consumers through our Van Heusen, IZOD, Geoffrey Beene, Bass and Calvin Klein retail stores, primarily located in outlet malls throughout the United States.


We completed the Superba acquisition in January 2007. This transaction added a business that we believe is complementary to our heritage business in dress shirts and that has followed the same multiple brand, multiple channel and multiple price point strategy that we have followed. We believe that coupling neckwear with our dress shirt business will create additional opportunities to grow and enhance the performance of both businesses by providing us with the ability to produce all of the neckwear for our owned brands over time and to leverage the design, merchandising and selling capabilities of both businesses to offer our customers a cohesive and comprehensive portfolio of branded dress shirts and neckwear.

Company Information


We were incorporated in the State of Delaware in 1976 as the successor to a business begun in 1881. Our footwear business is the successor to G.H. Bass & Co., a business begun in 1876, our Arrow business is the successor to the original Cluett, Peabody & Co., a business begun in 1851, and our neckwear business is the successor to a business begun in 1873. Our principal executive offices are located at 200 Madison Avenue, New York, New York 10016; our telephone number is (212) 381-3500.


We make available, at no cost, on our corporate website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have electronically filed such material with the Securities and Exchange Commission. We also make available, at no cost, on our corporate website, our Code of Business Conduct and Ethics. Our corporate website address is www.pvh.com .


Our Business Strategy


We intend to capitalize on the significant opportunities presented by our acquisition of Calvin Klein, as well as increase sales and profitability of our heritage business, through the execution of the following strategies:


Calvin Klein


We acquired Calvin Klein because of the significant growth opportunities presented by the Calvin Klein brands. The brand pyramid we created for the Calvin Klein brands established a strategic brand architecture to guide the global brand growth and development of all three brand tiers, by differentiating each of the Calvin Klein brands with distinct marketing identities, positioning and channels. Additionally, branding product across three tiers allows flexibility from market to market to build businesses that address the differences between markets. We have over 55 licensing and other arrangements across the three Calvin Klein brands. These arrangements span a broad range of product categories and also grant rights to open retail stores.


•

Calvin Klein Collection. The principal growth opportunity for our “halo” brand is to broaden the current distribution through the continued opening of freestanding stores operated throughout the world by our experienced retail partners, as well as through expanded distribution within premier department stores. We acquired CMI, the licensee of the men’s and women’s high-end collection apparel and accessories businesses, in January 2008. We believe this acquisition will give us greater control over the Calvin Klein Collection businesses, which will thereby enhance our ability to maximize the halo benefit provided by this brand.


•

ck Calvin Klein . Our “bridge” brand, ck Calvin Klein, provides significant growth opportunities, particularly in Europe and Asia, where apparel and accessories are more traditionally sold in the upper-moderate to upper “bridge” price range. We have entered into several licenses since we acquired Calvin Klein, adding to the pre-existing licensed apparel and accessories lines. Specific growth opportunities include:

–

Broadening distribution of apparel and accessories through continued expansion in key markets such as Southeast Asia, China and Japan, as well as Europe and the Middle East. Since 2004, more than 50 freestanding ck Calvin Klein stores have been opened in these regions, bringing the total number of freestanding stores in operation to 58 at the end of 2007. Approximately 40 more freestanding ck Calvin Klein stores are expected to be opened by licensees by 2010.


–

Continued global roll-out and subsequent expansion of the ck Calvin Klein Beauty line of color cosmetics and skin care products, which was launched in Fall 2007.


–

Expansion of the watch and jewelry lines worldwide.


•

Calvin Klein. We believe that the Calvin Klein white label “better” brand presents the largest growth opportunity, particularly in the United States, Canada and Mexico. Growth opportunities for this brand include:

–

Continued expansion of our men’s sportswear business, which was first launched for Fall 2004 in the United States.

Continued development of the licensed lines of men’s and women’s footwear, handbags, women’s sportswear, women’s suits, dresses, women’s swimwear and men’s outerwear.


–

Introduction and growth of new fragrance offerings and brand extensions, such as the new men’s and women’s ckIN2U (Spring 2007) and Calvin Klein MAN (Fall 2007) fragrances.


–

Introduction and growth of new underwear brand extensions, such as the men’s and women’s Steel and men’s T-Matrix, Flexible Fit, 365 Seamless, Boxer Matrix, and Naked programs, as well as the women’s Perfectly Fit Tech and Perfectly Fit Naked programs.


–

Pursuit of additional licensing opportunities for new product lines.


–

Continued opening of specialty retail stores in premier malls in the United States, which are intended to serve as a platform for showcasing the totality of the Calvin Klein “better” apparel and related products offering.


Heritage Business


•

Continue to grow sportswear. We have a leading position in the United States in men’s sportswear and have continued to penetrate the sportswear market with additional products and product lines. We have built IZOD into a year-round lifestyle brand from its traditional knit sport shirt origins by adding new product offerings, such as pants, sweaters and outerwear, and new lines of apparel, including golf and jeanswear. As a result, IZOD has become a leader on the main floor of department stores in the United States. We expanded our wholesale sportswear offerings through our assumption of the IZOD women’s sportswear collection, which was previously a licensed business. The license agreement was terminated and, during the second quarter of 2007, we assumed responsibility for the development and sale of the line.


•

Continue to strengthen the competitive position and image of our current brand portfolio. We intend for each of our brands to be a leader in its respective market segment, with strong consumer awareness and loyalty. We believe that our brands are successful because we have positioned each one to target distinct consumer demographics and tastes. We will continue to design and market our branded products to complement each other, satisfy lifestyle needs, emphasize product features important to our target consumers and increase consumer loyalty. We will seek to increase our market share in our businesses by expanding our presence through product extensions and increased floor space. We are also committed to investing in our brands through advertising to maintain strong customer recognition of our brands.


•

Continue to build our brand portfolio through acquisition and licensing opportunities. While we believe we have an attractive and diverse portfolio of brands with growth potential, we will also continue to explore acquisitions of companies or trademarks and licensing opportunities that we believe are additive to our overall business. New license opportunities allow us to fill new product and brand portfolio needs. We take a disciplined approach to acquisitions, seeking brands with broad consumer recognition that we can grow profitably and expand by leveraging our infrastructure and core competencies and, where appropriate, by extending the brand through licensing. For example, we licensed ARROW in 2000, as we saw it as an opportunity to penetrate the mid-tier department store channel of distribution, and we acquired the brand in 2004 because we believe that by controlling the brand, we can continue to increase revenue and expand product offerings. In the fourth quarter of 2006, we acquired the assets of Superba, a leading neckwear company, which added a business that we believe is complementary to our dress shirt business and expanded our portfolio of licensed brands. Additionally, during 2007, we announced our licensing agreement with The Timberland Company, under which we will design, source and market sportswear under the Timberland brand, with our assumption of the men’s line for Fall 2008 and the launch of a women’s sportswear line currently planned for Spring 2010.


•

Pursue international growth. We intend to expand the international distribution of our brands. We recently expanded our wholesale operations to include sales of certain of our products to department and specialty stores throughout Canada and parts of Europe, and have over 100 license agreements, covering over 120 countries, to use our brands in numerous product categories, including apparel, accessories, footwear, soft home goods and fragrances. We believe that our strong brand portfolio and broad product offerings enable us to seek additional growth opportunities in geographic areas where we believe we are underpenetrated, such as Europe and Asia. These opportunities may include the licensing of our brand names to companies that we believe have appropriate international distribution channel access or expertise. We believe that our acquisition of Arrow, which included numerous licenses for parts of Europe, Asia and Latin America, establishes a platform to leverage other brand opportunities. Further, Van Heusen has a heritage of international distribution, particularly in Latin America, the United Kingdom and Australia.


Our Business


We manage our business through our operating divisions, which consist of five reportable segments: (i) Calvin Klein Licensing; (ii) Wholesale Dress Furnishings; (iii) Wholesale Sportswear and Related Products; (iv) Retail Apparel and Related Products; and (v) Retail Footwear and Related Products. Note 17, “Segment Data,” in the Notes to Consolidated Financial Statements included in Item 8 of this report contains information with respect to revenue, operating income and assets related to each segment, as well as information regarding the geographic areas in which our segments operate.


Calvin Klein


Our Calvin Klein businesses primarily consist of (1) licensing and similar arrangements worldwide of the Calvin Klein Collection, ck Calvin Klein and Calvin Klein brands for a broad array of products, including sportswear, jeans, underwear, fragrances, cosmetics, eyewear, men’s tailored clothing, neckwear, shoes, hosiery, socks, footwear, swimwear, jewelry, watches, coats, handbags, leather goods, home furnishings and accessories, as well as to operate retail stores (Calvin Klein Licensing segment); (2) the marketing of the Calvin Klein Collection brand high-end men’s and women’s apparel and accessories collections through our Calvin Klein Collection flagship store (Retail Apparel and Related Products segment); (3) our Calvin Klein dress shirt, neckwear and men’s better sportswear businesses (Wholesale Dress Furnishings and Wholesale Sportswear and Related Products segments, respectively); and (4) our Calvin Klein retail stores located in premium outlet malls in the United States and our Calvin Klein specialty retail stores located in premier malls in the United States, which we began to open in 2007 (Retail Apparel and Related Products segment).


We acquired Calvin Klein because of the significant growth opportunities presented by the Calvin Klein brands. Although Calvin Klein was a large global brand with strong consumer recognition across many demographics before we acquired it, there were numerous product areas in which no products, or only a limited number of products, were offered under any of the Calvin Klein brands. In order to more efficiently and effectively exploit the development opportunities for each brand, a brand pyramid was established to provide a focused, consistent approach to global brand growth and development, with each of the Calvin Klein brands occupying a distinct marketing identity and position.



Calvin Klein Collection is the “halo” brand at the top of the pyramid that personifies the Calvin Klein aesthetic of modern, contemporary, minimalist style, which is translated to the other Calvin Klein brands. In January 2008, we acquired CMI, the licensee of the men’s and women’s Calvin Klein Collection apparel and accessories businesses. We market under this brand, directly and through licensees, men’s and women’s high-end collection apparel, eyewear, footwear, accessories and coats. We hold two runway shows each for men and women annually and operate a flagship store, located on Madison Avenue in New York City, under the Calvin Klein Collection brand. These activities support our visibility in the fashion industry and help convey the Calvin Klein aesthetic to the world. In addition, four freestanding Calvin Klein Collection stores are operated by licensees in major cities outside of the United States.


The second tier of the pyramid is ck Calvin Klein , our bridge brand. The products offered under this brand include men’s and women’s apparel, accessories, fragrances, watches, eyewear, jewelry and cosmetics. We believe this brand provides significant growth opportunities, particularly in Europe and Asia, where apparel and accessories are more traditionally sold at bridge price points. Currently, ck Calvin Klein apparel is available in Japan and, under recent licenses, in 58 freestanding ck Calvin Klein stores in Southeast Asia, China and Europe.


The third tier of the pyramid is the Calvin Klein brand, which is positioned within the “better” price range. There were product gaps in this price range prior to our acquisition of Calvin Klein in 2003. To address these gaps, we introduced the men’s better sportswear line and entered into licenses for women’s better sportswear, swimwear, men’s tailored clothing, outerwear, footwear and handbags, as well as other accessories since that time. These new product categories complement the pre-acquisition offerings, which include fragrances, underwear, jeanswear, home goods, accessories and other products. In addition, we have opened Calvin Klein retail stores in premium outlet malls in the United States and Calvin Klein specialty retail stores in premier malls in the United States, which we believe enhance customer perception and awareness of the Calvin Klein “better” brand.


An important element of this tiered brand strategy is the preservation of the prestige and image of the Calvin Klein brands. To this end, we maintain a dedicated in-house marketing, advertising and design division of Calvin Klein that oversees a worldwide marketing, advertising and promotions program of approximately $250 million, the majority of which is funded by its licensees and other authorized users. Calvin Klein designs and/or controls all design operations and product development for most of its licensees.


Calvin Klein Licensing Segment


An important source of our revenue is Calvin Klein’s arrangements with licensees and other third parties worldwide that manufacture and distribute globally a broad array of products under the Calvin Klein brands. For 2007, approximately 42% of Calvin Klein’s royalty, advertising and other revenue was generated domestically and approximately 58% was generated internationally. Calvin Klein combines its design, marketing and imaging skills with the specific manufacturing, distribution and geographic capabilities of its licensing and other partners to enter into new product categories and extend existing lines of business. Calvin Klein’s largest licensing and other partners in terms of royalty, advertising and other revenue earned by Calvin Klein in 2007 were Warnaco, Inc., accounting for approximately 41%, and Coty, Inc., accounting for approximately 18%.

Calvin Klein entered into new licensing agreements during 2007 for, among other things, case furniture, upholstered furniture, men’s bridge tailored clothing, women’s bridge handbags and accessories, women’s active performance wear, boys’ better tailored clothing and men’s and women’s golf apparel.


With respect to revenue generated from the sale of Calvin Klein men’s and children’s underwear and sleepwear and women’s intimate apparel and sleepwear, Warnaco pays Calvin Klein an administration fee based on Warnaco’s worldwide sales of such products under an administration agreement between Calvin Klein and Warnaco. Warnaco, as the beneficial owner of the Calvin Klein mark for underwear, intimate apparel and sleepwear, controls design and advertising related to the sale of such products bearing the Calvin Klein mark. See “Trademarks.”


Heritage Business


Our “heritage” business encompasses the design, sourcing and marketing of dress shirts, neckwear, sportswear and footwear under our portfolio of owned and licensed nationally recognized brands. Our wholesale business represents our core business and we believe that it is the basis for our brand equity. As a complement to our wholesale business, we also market products directly to consumers through our Van Heusen, IZOD, Geoffrey Beene, Bass and Calvin Klein retail stores, primarily located in outlet malls throughout the United States. We also license our owned heritage brands ( Van Heusen, IZOD, ARROW, Bass and G.H. Bass & Co. ) to third parties domestically and internationally for an assortment of products.


Wholesale Dress Furnishings Segment


Our Wholesale Dress Furnishings segment principally includes the design and marketing of dress shirts and the design, manufacturing and marketing of neckwear.


We market our dress shirts principally under the Van Heusen, ARROW, Geoffrey Beene, Calvin Klein, IZOD, Eagle, BCBG Max Azria, BCBG Attitude, CHAPS, Sean John, Donald J. Trump Signature Collection, Kenneth Cole New York, Kenneth Cole Reaction, MICHAEL Michael Kors and JOE Joseph Abboud brands. Since the first quarter of fiscal 2008, we also market dress shirts under the DKNY brand.


The Van Heusen dress shirt has provided a strong foundation for us for most of our history and is the best selling dress shirt brand in the United States. The Van Heusen dress shirt targets the updated classical consumer, is marketed at opening to moderate price points and is distributed through more than 3,100 doors, principally in department stores, including Belk, Inc., Macy’s, Inc., Stage Stores, Inc. and J.C. Penney Company, Inc.


ARROW is the second best selling dress shirt brand in the United States. The ARROW dress shirt targets the updated classical consumer, is marketed at opening to moderate price points and is distributed through more than 2,300 doors, principally in mid-tier department stores, including Kohl’s Corporation, Sears, Roebuck and Co. and Mervyn’s, LLC. The ARROW dress shirt is positioned as a mid-tier department store complement to Van Heusen .


The Geoffrey Beene dress shirt is the best selling designer dress shirt brand in the United States. The Geoffrey Beene dress shirt targets the more style conscious consumer, is marketed at moderate to upper moderate price points and is distributed through more than 2,300 doors, principally in department and specialty stores, including Macy’s and Casual Male Retail Group, Inc. We market Geoffrey Beene dress shirts under a license agreement with Geoffrey Beene, Inc. that expires on December 31, 2008 and which we may extend, subject to certain conditions, through December 31, 2013.


The Calvin Klein dress shirt targets the modern classical consumer, is marketed at better price points and is distributed through more than 1,000 doors, principally in department stores, including Macy’s. We also offer our Calvin Klein Collection and ck Calvin Klein dress shirts to the more limited channel of luxury department and specialty stores and freestanding Calvin Klein Collection and ck Calvin Klein stores.


The IZOD dress shirt targets the modern traditional consumer, is marketed at moderate price points and is distributed through more than 1,700 doors, principally in department stores, including Belk and JCPenney.


The Eagle dress shirt, a 100% cotton, no-iron shirt, targets the updated traditional consumer, is marketed at better price points and is distributed through more than 550 doors, principally in department stores, including Macy’s.


The BCBG Max Azria dress shirt targets the contemporary consumer and is marketed at better price points. The BCBG Attitude dress shirt targets the more youthful contemporary consumer and is also marketed at better price points. We distribute the two BCBG brands of dress shirts through more than 250 doors combined, principally in department stores, including Macy’s and Dillards, Inc., under a license agreement with BCBG Max Azria Group, Inc. that expires on January 31, 2010 and which we may extend, subject to certain conditions, through January 31, 2020.


The CHAPS dress shirt targets the updated traditional consumer and is marketed at moderate price points. The CHAPS dress shirt is distributed through more than 950 doors, principally in mid-tier department stores, including Kohl’s. We market CHAPS dress shirts under a license agreement with PRL USA, Inc. and The Polo/Lauren Company, LP that expires on December 31, 2010.

CEO BACKGROUND

Mr. Emanuel Chirico joined us as Vice President and Controller in 1993. Mr. Chirico was named Executive Vice President and Chief Financial Officer in 1999, President and Chief Operating Officer in 2005, Chief Executive Officer in February 2006 and Chairman of the Board in June 2007.


Mr. Allen E. Sirkin has been employed by us since 1985. He served as Chairman of our Apparel Group from 1990 until 1995, was named Vice Chairman, Dress Shirts in 1995 and President and Chief Operating Officer in March 2006.


Mr. Michael A. Shaffer has been employed by us since 1990. He most recently served as Senior Vice President, Retail Operations before being named Executive Vice President, Finance in 2005 and Chief Financial Officer in March 2006.


Mr. Francis K. Duane served as President of our Izod division from 1998 until 2001, was named Vice Chairman, Sportswear in 2001 and Vice Chairman, Wholesale in March 2006.


Mr. Michael Zaccaro served as President, Izod Retail from 1999 until 2001, was named Group President, Van Heusen and Izod Retail in 2001 and Vice Chairman, Retail in April 2002.

Mr. Paul Thomas Murry has been employed by Calvin Klein since 1996. Mr. Murry retained his position as President and Chief Operating Officer, Calvin Klein upon our acquisition of Calvin Klein in 2003.

MANAGEMENT DISCUSSION FROM LATEST 10K

OVERVIEW


The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our consolidated financial statements and the accompanying notes, which are included elsewhere in this report.


We are one of the largest apparel companies in the world, with a heritage dating back over 125 years. Our brand portfolio consists of nationally recognized brand names, including Calvin Klein, Van Heusen, IZOD, ARROW, Bass and Eagle, which are owned, and Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, BCBG Max Azria, BCBG Attitude, Sean John, CHAPS, Donald J. Trump Signature Collection, DKNY, Tommy Hilfiger, Nautica, Perry Ellis Portfolio, Ike Behar and Jones New York , which are licensed.


Our results in 2007 were strong despite the macroeconomic challenges that impacted the overall retail environment. These results built on the positive trends and strong performance we have experienced since 2004 and included recording revenue and net income at record levels. Our strong performance over the past few years also provided us with sufficient cash flow to fund a $200 million stock repurchase in the interest of returning value to our stockholders.


Our historical business strategy has been to manage and market a portfolio of nationally recognized brands at multiple price points and across multiple channels of distribution. We believe this strategy reduces our reliance on any one demographic group, merchandise preference or distribution channel. We have expanded this strategy, including through our acquisitions of Calvin Klein in February 2003 and Arrow in December 2004. These acquisitions not only provided us with brands that offer additional distribution channel and price point opportunities in our traditional categories of dress shirts and sportswear, thus building on our historical strategy, but also provided us with established international licensing businesses which do not require capital investments. These acquisitions have also provided us with growth opportunities in extending these brands through licensing into additional product categories and jurisdictions, as well as by providing us with some protection against general downturns in the U.S. economy. Our acquisition in January 2007 of Superba’s established neckwear business advances our historical strategy by adding a product category that can be leveraged into the strategy and is complementary to our heritage dress shirt business. This presents us with opportunities to grow and enhance the performance of both businesses by providing us with the ability to produce all of the neckwear for our owned brands over time and to leverage the design, merchandising and selling capabilities of both businesses to offer our customers a cohesive and comprehensive portfolio of branded dress shirts and neckwear. Our business strategy was further supported by our assumption of the wholesale IZOD women’s sportswear collection, which was previously a licensed business. During the second quarter of 2007, we assumed responsibility for the development and sale of the line, which allowed us to expand our operations for the first time to include the wholesale distribution of women’s sportswear.


Our financial results in 2007 were driven by the continued strength of our Calvin Klein brand, through the growth of existing businesses and entry into new businesses, both directly by us and through licensees in the U.S. and abroad. Approximately 25% of our total earnings before interest and taxes is derived from international sources, driven by the significant international component of our Calvin Klein licensing business. Additionally, the performance of our new neckwear and IZOD women’s sportswear businesses contributed to our revenue and earnings increases. This demonstrates the effectiveness of our business strategy, as the positive performance of these businesses offset the negative impact that the overall soft retail environment had on our sportswear and heritage brand retail businesses.


We intend to continue to build upon our business strategy by implementing new initiatives that provide us with the opportunity to promote our products and to fill product and brand portfolio needs. This is evidenced by our opening of Calvin Klein specialty retail stores in premier malls in the U.S., which are intended to serve as a platform for showcasing the totality of the Calvin Klein white label “better” product. We opened five of these stores during 2007 and plan to open another five stores during 2008. In addition, we have entered into a licensing arrangement with The Timberland Company to design, source and market men’s and women’s casual sportswear under the Timberland brand in North America. We will assume the management of the men’s apparel line, which is currently produced by The Timberland Company, for the Fall 2008 season and currently plan to launch a women’s line for Spring 2010. Timberland is an authentic outdoor traditional brand targeted to the department and specialty store channels of distribution that we believe has a unique positioning that will complement our existing portfolio of sportswear brands and enable us to reach a broader spectrum of consumers.


We intend to continue to expand our operations globally, through direct marketing by us and through partnerships with licensees. We recently expanded our wholesale operations to include sales of certain of our products to department and specialty stores throughout Canada and parts of Europe, and have entered into many license agreements with partners across the globe for our brands.

Our strong earnings and positive cash flow over the past few years enabled us to return value to our stockholders through a $200 million stock repurchase program, which was completed during the fourth quarter of 2007. In addition, during 2007, we continued to invest heavily in the marketing of our brands by spending a record $153 million on advertising (funded partially by licensees and other partners). We also made significant investments in people and infrastructure for existing and new businesses, including through the expansion of our office facilities both domestically and internationally. After funding these investments and the stock repurchase with cash on hand, we ended 2007 with $270 million in cash and a strong balance sheet with significant credit availability, which we believe enables us to continue to explore licensing and acquisition opportunities that will enhance our business strategy and promote our future growth.


RESULTS OF OPERATIONS


Operations Overview


We generate net sales from (i) the wholesale distribution of men’s dress shirts, men’s sportswear, neckwear (beginning in the fourth quarter of 2006) and women’s sportswear (beginning in the second quarter of 2007); and (ii) the sale, through approximately 750 company-operated retail stores, of apparel, footwear and accessories under the brand names Van Heusen, IZOD, Geoffrey Beene, Bass and Calvin Klein . Our stores principally operate in an outlet format. We also operate a full price store located in New York City under the Calvin Klein Collection brand, in which we principally sell men’s and women’s high-end collection apparel and accessories, soft home furnishings and tableware. In the third quarter of 2007, we began operating a limited number of specialty retail stores in premier malls in the United States under the Calvin Klein brand, in which we principally sell men’s and women’s better apparel and accessories.


We generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. Calvin Klein royalty, advertising and other revenue, which comprised 89% of total royalty, advertising and other revenue in 2007, is derived under licenses and other arrangements for a broad array of products, including jeans, underwear, fragrances, eyewear, watches and home furnishings.


Gross profit on total revenue is total revenue less cost of goods sold. Included as cost of goods sold are costs associated with the production and procurement of product, including inbound freight costs, purchasing and receiving costs, inspection costs, internal transfer costs and other product procurement related charges. Because there is no cost of goods sold associated with royalty, advertising and other revenue, 100% of such revenue is included in gross profit. As a result, our gross profit may not be comparable to that of other entities.


Selling, general and administrative expenses include all other expenses, excluding interest and income taxes. Salaries and related fringe benefits is the largest component of selling, general and administrative expenses, comprising 47% of such expenses in 2007. Rent and occupancy for offices, warehouses and retail stores is the next largest expense, comprising 21% of selling, general and administrative expenses in 2007.

Net Sales


Our net sales in 2007 increased to $2,127.7 million from $1,849.2 million in 2006 and $1,697.3 million in 2005. Our 2007 net sales increase of $278.5 million over 2006 net sales was due principally to:


•

the addition of $153.2 million of net sales attributable to growth in our Wholesale Dress Furnishings segment, resulting principally from sales of our new neckwear division that we created in connection with our January 2007 acquisition of Superba;


•

the addition of $73.3 million of net sales attributable to growth in our Wholesale Sportswear and Related Products segment, driven primarily by the addition of sales associated with our assumption of the IZOD women’s sportswear business in the second quarter of 2007, as well as growth in our Calvin Klein sportswear business; and


•

the addition of $52.0 million of net sales attributable to growth in our retail segments, primarily driven by comparable store sales growth of approximately 1% in our outlet retail business and the opening of Calvin Klein and other outlet retail stores. The year-to-year comparative results of our retail segments were negatively impacted by approximately $10.0 million as a result of an extra week of revenue in the prior year, as 2006 included 53 weeks of operations. We believe that 2007 comparable store sales are more appropriately compared with 2006 excluding the impact of the extra week of revenue. The impact of the extra week of revenue was a decrease in comparable store sales of 2%. Therefore, excluding the impact of the extra week of revenue in 2006, our outlet retail divisions would have achieved comparable store sales growth of approximately 3%.

Our 2006 net sales increase of $151.9 million over 2005 net sales was due principally to the net effect of the items described below.


Net sales increases in 2006 included:


•

the addition of $111.6 million of net sales attributable to growth in our retail segments, driven by an increase of approximately 9% in comparable store sales and the opening of additional Calvin Klein outlet retail stores in premium outlet malls. Included in our net sales increase was approximately $10.0 million in additional revenue from the extra week (53 rd week) in 2006. Excluding the extra week of revenue, our outlet retail divisions achieved comparable store sales growth of approximately 8%; and


•

the addition of $63.5 million of net sales attributable to growth in our Wholesale Sportswear and Related Products segment, driven by increases across all of our wholesale sportswear divisions, particularly Calvin Klein men’s better sportswear.


Net sales decreases in 2006 included:


•

a $23.2 million sales decrease in our Wholesale Dress Furnishings segment, resulting principally from door closings associated with the 2005 acquisition by Federated Department Stores, Inc. (now known as Macy’s, Inc.) of The May Department Stores Company.


Our net sales in fiscal 2008 are expected to increase approximately 6% to 7% due principally to growth in our existing businesses, particularly our Calvin Klein men’s sportswear and outlet retail businesses, as well as the impact of a full year of sales from our IZOD women’s sportswear business. Sales are also expected to increase as a result of our Timberland men’s sportswear line, which will launch for Fall 2008, the expected opening of Calvin Klein specialty retail stores in premier malls in the United States, and our January 2008 acquisition of CMI, the licensee of our Calvin Klein Collection apparel and accessories businesses.


Royalty, Advertising and Other Revenue


Royalty, advertising and other revenue increases over the prior year were $56.0 million and $29.9 million in 2007 and 2006, respectively. These increases were primarily attributable to our Calvin Klein Licensing segment. Approximately 93% of the growth in Calvin Klein royalty, advertising and other revenue in 2007 was attributable to growth from existing licenses, with the remaining 7% generated through new licenses. These increases were due, in part, to continued strength in fragrances, particularly in 2007, which experienced the successful launches of the new men’s and women’s ckIN2U fragrance lines and the new Calvin Klein MAN fragrance line, as well as continued strength in sales of both the men’s and women’s euphoria fragrance lines. In addition, jeans and underwear experienced significant international and domestic growth which, combined with the success of licensed product categories introduced over the past four years, further contributed to the revenue increase.


We currently expect that royalty, advertising and other revenue will increase approximately 10% in our Calvin Klein Licensing segment in fiscal 2008 as a result of growth in the businesses of existing licensees, as well as royalties generated under new license agreements. Royalty, advertising and other revenue in our other segments is expected to be relatively flat in fiscal 2008.


Gross Profit on Total Revenue Gross profit as a percentage of total revenue decreased 20 basis points in 2007, due principally to the net effect of the items described below:


Gross margin improved due to:


•

strong product sell-throughs in our wholesale dress shirt business throughout the year and in our outlet retail business during the first half of the year, which yielded more full-price selling; and


•

a change in revenue mix, as royalty, advertising and other revenue, which does not carry a cost of sales and has a gross profit percentage of 100%, increased as a percentage of total revenue.


Gross margin declined due to:


•

a change in sales mix, as net sales attributable to our wholesale businesses, which typically have lower gross margins than our retail businesses, increased as a percentage of our total net sales, due to faster sales growth in our wholesale businesses. The faster revenue growth in our wholesale businesses was due, in part, to the addition of sales associated with our new neckwear and IZOD women’s sportswear businesses; and


•

increased promotional selling in our wholesale sportswear business, which was negatively affected throughout the year by the overall weak retail environment and by the unseasonably warm weather that was experienced in much of the United States during September and October of 2007.


Gross profit as a percentage of total revenue increased 260 basis points in 2006 due principally to strong product sell-throughs, which yielded more full-price selling. Also contributing to the increase was a change in revenue mix, as (i) net sales attributable to our outlet retail businesses, which have higher gross margins than our wholesale businesses, increased as a percentage of our total net sales in 2006; and (ii) royalty, advertising and other revenue increased as a percentage of total revenue in 2006. Royalty, advertising and other revenue does not carry a cost of sales, and as such, the gross profit percentage of such revenue is 100%.


We currently expect that the gross profit on total revenue percentage will decrease approximately 50 to 60 basis points in fiscal 2008 compared to 2007, as gross margin growth attributable to our Calvin Klein businesses is expected to be more than offset by gross margin declines in our heritage brand wholesale and retail outlet businesses due principally to additional promotional selling.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

OVERVIEW


The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our consolidated financial statements and the accompanying notes, which are included elsewhere in this report.


We are one of the largest apparel companies in the world, with a heritage dating back over 125 years. Our brand portfolio consists of nationally recognized brand names, including Calvin Klein, Van Heusen, IZOD, ARROW, Bass and Eagle, which are owned, and Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, BCBG Max Azria, BCBG Attitude, Sean John, CHAPS, Donald J. Trump Signature Collection, DKNY, Tommy Hilfiger, Nautica, Ike Behar, Jones New York and Timberland, which are licensed. In the first quarter of 2008, we acquired certain assets of Mulberry, which enabled us to add the J. Garcia and Claiborne brand names, among others, to our portfolio of licensed brands. In addition, through the second quarter of 2008, we sold neckwear under the Perry Ellis Portfolio brand name and agreed during the second quarter of 2008 to a termination of the license to sell neckwear under such brand.


Our historical business strategy has been to manage and market a portfolio of nationally recognized brands at multiple price points and across multiple channels of distribution. We believe this strategy reduces our reliance on any one demographic group, merchandise preference or distribution channel. We have expanded this strategy, including through our acquisitions of Calvin Klein in February 2003 and Arrow in December 2004. These acquisitions not only provided us with brands that offer additional distribution channel and price point opportunities in our traditional categories of dress shirts and sportswear, thus building on our historical strategy, but also provided us with established international licensing businesses which do not require capital investments. These acquisitions have also provided us with growth opportunities in extending these brands through licensing into additional product categories and jurisdictions, as well as by providing us with some protection against general downturns in the U.S. economy. The Superba acquisition in January 2007 provided us with an established neckwear business base, which advances our historical strategy by adding a product category that can be leveraged into the strategy and is complementary to our heritage dress shirt business. The Mulberry acquisition in April 2008 built upon this base. The Superba and Mulberry acquisitions present us with opportunities to grow and enhance the performance of both the dress shirt and neckwear businesses by providing us with the ability to produce and market all of the neckwear for our owned brands over time and to leverage the design, merchandising and selling capabilities of both businesses to offer our customers a cohesive and comprehensive portfolio of branded dress shirts and neckwear. Our business strategy was also supported by our assumption of the wholesale IZOD women’s sportswear collection, which was previously a licensed business. During the second quarter of 2007, we assumed responsibility for the development and sale of the line, which allowed us to expand our operations for the first time to include the wholesale distribution of women’s sportswear.


We intend to continue to build upon our business strategy by implementing new initiatives that provide us with the opportunity to promote our products and to fill product and brand portfolio needs. This is evidenced by our opening of Calvin Klein specialty retail stores in premier malls in the U.S., which are intended to serve as a platform for showcasing the totality of the Calvin Klein white label “better” product. We opened nine of these stores through the first half of 2008 and opened one additional store in the third quarter of 2008. In addition, we have a licensing arrangement with The Timberland Company to design, source and market men’s and women’s casual sportswear under the Timberland brand in North America. We have assumed the management of the men’s apparel line for the Fall 2008 season and currently plan to launch a women’s line for Spring 2010. Timberland is an authentic outdoor traditional brand targeted to the department and specialty store channels of distribution that we believe has a unique positioning that will complement our existing portfolio of sportswear brands and enable us to reach a broader spectrum of consumers.


A significant portion of our total income before interest and taxes is derived from international sources, primarily driven by the significant international component of our Calvin Klein licensing business. We intend to continue to expand our operations globally through direct marketing by us and through partnerships with licensees. We recently expanded our wholesale operations to include sales of certain of our products to department and specialty stores throughout Canada and parts of Europe and have entered into many license agreements with partners across the globe for our brands.


OPERATIONS OVERVIEW


We generate net sales from (i) the wholesale distribution of men’s dress shirts, men’s sportswear, neckwear and women’s sportswear (beginning in the second quarter of 2007); and (ii) the sale, through over 750 company-operated retail stores, of apparel, footwear and accessories under the brand names Van Heusen, IZOD, Geoffrey Beene, Bass and Calvin Klein .


We announced in the second quarter of 2008 our plan to close our Geoffrey Beene outlet retail division. The Geoffrey Beene outlet retail division, which operated approximately 100 stores at the time of the announcement, is expected to cease operations by the end of 2008. Approximately 25 stores will be converted, substantially all to the Calvin Klein outlet retail format, with the remaining stores being closed. We have recorded pre-tax charges of approximately $6 million related to non-cash asset impairments and approximately $3 million related to inventory liquidations, contract terminations, severance and other costs in the second quarter of 2008 in connection with the closure of the division. We expect to incur additional pre-tax charges of approximately $15 million related to inventory liquidations, contract terminations, severance and other costs over the balance of 2008. All charges associated with the closure are recorded in the Retail Apparel and Related Products segment.


Our stores principally operate in outlet centers. We also operate a full price store located in New York City under the Calvin Klein Collection brand, in which we principally sell men’s and women’s high-end collection apparel and accessories, soft home furnishings and tableware. We began opening and operating in the third quarter of 2007 a limited number of specialty retail stores in premier malls in the United States under the Calvin Klein brand, in which we principally sell men’s and women’s better apparel and accessories. There are currently 10 such stores in operation.


We generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. Calvin Klein royalty, advertising and other revenue, which comprised 90% of total royalty, advertising and other revenue in the first half of 2008, is derived under licenses and other arrangements for a broad array of products, including jeans, underwear, fragrances, eyewear, watches and home furnishings.


Gross profit on total revenue is total revenue less cost of goods sold. Included as cost of goods sold are costs associated with the production and procurement of product, including inbound freight costs, purchasing and receiving costs, inspection costs, internal transfer costs and other product procurement related charges. Because there is no cost of goods sold associated with royalty, advertising and other revenue, 100% of such revenue is included in gross profit. As a result, our gross profit may not be comparable to that of other entities.

Selling, general and administrative expenses include all other expenses, excluding interest and income taxes. Salaries and related fringe benefits is the largest component of selling, general and administrative expenses, comprising 49% of such expenses in the first half of 2008. Rent and occupancy for offices, warehouses and retail stores is the next largest expense, comprising 23% of selling, general and administrative expenses in the first half of 2008.


RESULTS OF OPERATIONS


Thirteen Weeks Ended August 3, 2008 Compared With Thirteen Weeks Ended August 5, 2007


Net Sales


Net sales in the second quarter of 2008 decreased 1.8% to $480.3 million from $488.9 million in the second quarter of the prior year. The decrease of $8.6 million was due principally to the net effect of the items described below:



•

the reduction of $21.7 million of net sales attributable to our wholesale segments resulting primarily from declines in our heritage brand sportswear and dress furnishings businesses. These declines were due, in part, to the recent bankruptcy filings of certain of our wholesale customers, combined with the negative impact of the difficult overall macroeconomic environment in the United States. Partially offsetting these decreases was the addition of sales associated with the launch of our Timberland wholesale men’s sportswear business in the second quarter of 2008 and a full quarter of sales of our IZOD women’s sportswear line, which began shipping late in the second quarter of 2007;


•

the addition of $10.1 million of net sales attributable to growth in our retail segments driven by the opening of Calvin Klein specialty retail stores located in premier malls in the United States, as well as store openings and strong performance in our Calvin Klein outlet retail business. Partially offsetting this increase were declines in our heritage brand outlet retail businesses. Total outlet retail comparable store sales decreased 2% for the quarter, with the Calvin Klein outlet retail business achieving comparable store sales growth of 9% and the heritage brand outlet retail businesses experiencing a comparable store sales decline of 5%. We exclude from our comparable store sales percentage measures all stores that are scheduled to be closed. As such, our Geoffrey Beene outlet retail stores are excluded from the foregoing comparable store sales measures; and


•

the addition of $3.0 million of net sales attributable to our recent acquisition of CMI.


Royalty, Advertising and Other Revenue


Royalty, advertising and other revenue in the second quarter of 2008 increased 27.0% to $80.7 million from $63.5 million in the second quarter of the prior year. This increase was primarily attributable to our Calvin Klein Licensing segment, as a result of growth across virtually all product categories and regions of the globe, with jeans and underwear performing exceptionally well.


Gross Profit on Total Revenue


Gross profit on total revenue in the second quarter of 2008 was $288.9 million, or 51.5% of total revenue, compared with $277.5 million, or 50.2% of total revenue in the second quarter of the prior year. The 130 basis point increase was due to a change in revenue mix, as royalty, advertising and other revenue, which does not carry a cost of sales and has a gross profit percentage of 100%, increased as a percentage of total revenue. This increase was offset, in part, by a decrease in gross margin due to increased promotional selling in our heritage brand outlet retail businesses, which were negatively affected by the overall weak retail environment. Also negatively affecting the gross profit percentage was a 30 basis point decrease in gross margin as a result of inventory liquidation markdowns associated with the closure of our Geoffrey Beene outlet retail division.


Selling, General and Administrative (SG&A) Expenses


SG&A expenses in the second quarter of 2008 were $234.5 million, or 41.8% of total revenue, compared with $209.5 million, or 37.9% of total revenue, in the second quarter of the prior year. The 390 basis point increase includes an increase of approximately 130 basis points related to asset impairments, severance, contract termination and other costs associated with the closure of our Geoffrey Beene outlet retail division. The remaining 260 basis point increase was due principally to the sales decreases in our heritage outlet retail businesses mentioned previously, SG&A expenses associated with our new Calvin Klein specialty retail stores and additional expenses associated with the continued opening of Calvin Klein outlet retail stores, as our retail businesses typically have higher expense rates than our wholesale businesses. The $24.9 million increase in SG&A expenses in the second quarter of 2008 included: (i) increased expenses of approximately $9.0 million associated with our new Timberland wholesale men’s sportswear business and Calvin Klein specialty retail stores; (ii) expenses of $7.1 million related to asset impairments, severance, contract termination and other costs associated with the closure of our Geoffrey Beene outlet retail division; (iii) operating expenses of $4.6 million related to our recent acquisition of CMI; (iv) an increase in advertising expenditures of $2.0 million, due principally to the timing of expenditures; and (v) increased expenses of $1.4 million in our retail segments principally related to the continued opening of Calvin Klein outlet retail stores.


Interest Expense and Interest Income


The majority of our interest expense relates to our fixed rate long-term debt. As a result, variances in our net interest expense tend to be driven by changes in interest income and, to a lesser extent, costs related to our revolving credit facility.


Interest expense of $8.4 million in the second quarter of 2008 was relatively flat to the prior year’s second quarter amount of $8.5 million. Interest income decreased to $1.6 million in the second quarter of 2008 from $4.6 million in the second quarter of the prior year. This decrease was due principally to a decrease in our cash position during 2008 as a result of the completion of our $200.0 million stock repurchase in the fourth quarter of 2007, combined with a decrease in investment rates of return compared to the prior year.


Income Taxes


In the first quarter of 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48 (“FIN 48”). Under FIN 48, volatility in our tax rate may occur, either from quarter to quarter, or from year to year, due to events or new information that causes us to re-evaluate our unrecognized tax benefits.


Income taxes for the second quarter of 2008 were provided for at a rate of 38.7% compared with last year’s full year rate of 37.8%.

CONF CALL

Emanuel Chirico

Good morning everyone and thanks for joining us on the call. On the call with me this morning is Allen Sirkin our President and Chief Operating Officer, Mike Shaffer our Chief Financial Officer and Pam Hootkin our Treasurer and Director of Investor Relations.

We were quite pleased with our second quarter earnings release and results particularly in light of the difficult retail environment that we’re dealing with. Let me start with Calvin Klein licensing business, our Calvin Klein licensing business had an extraordinarily strong second quarter. Royalty revenues increased 28% in the second quarter and operating earnings grew over 47%.

Results were very strong across all geographic regions and virtually all product categories. Royalty revenues grew internationally about 35% while domestic business was up about 15%. Michael Shaffer our CFO is going to quantify the details of the quarter, what I’d like to do for the licensing segment of Calvin Klein is focus on the first half results to give you a perspective of the business.

When you look at the first half overall royalty revenues grew about 23% and our operating earnings for the first half were up about 32%. Overall our operating margins for the first half of the year increased by about 300 basis points to over 53%.

Looking at our large businesses, I’m going to start with the Warnaco businesses, our jeans royalties for the first half were ahead a little bit more than 25%. Our international jeans business was up 40% while the US business was ahead slightly more than 10% for the first half of the year.

The US growth was driven by the women’s jeans business as well as the newly launched plus size department store business. Our international business was driven by strong performance throughout Europe, Asia and throughout the Americas. Strong retail performance was fueled by comp store growth of over 20% as well as continued expansion of retail stores particularly throughout Asia.

Moving to the underwear side of the business royalty revenues were the first half were ahead over 20%. The business grew in the US about 10% while international growth was an impressive 35%. The international growth was driven by the direct to consumer portion of the business; this growth came from comp store growth of about 20% and the continued opening of new retail stores.

We saw continued strength on the men’s side of the business from the success of our Steel launch which has continued to benefit from an extremely strong product offering and amazing marketing campaign that features Djimon Hounsou throughout the first half of the year.

Just to remind everyone, Steel launched at the second half of last year. It was a tremendously successful launch for us and that momentum has just continued into the first half of this year.

The major news for fall is the launch of Seductive Comfort which we believe will bring as much excitement to the women’s business as Steel has done for the men’s business. The launch will be supported by a major marketing campaign featuring Eva Mendez. The product offering and the marketing campaign has been received very strongly by our retail partners. There’s been great marketing and PR buzz surrounding the campaign and we think the marketing machine is working very well for us with this launch and we’re very excited as we head into the third quarter, particularly around underwear.

The strength of Steel coupled with the new launch we think will continue to fuel the growth in the Calvin Klein underwear business.

Moving to Coty our fragrance business, Coty for the year is ahead of plan and is up for the first six months of the year about 3%. That’s very important when you consider we were planning this business down in the first half of the year because we were up against some major product launches in particular the CK IN2U launch was in the spring of 2007; that was a tremendously successful launch for us.

That franchise is over $100 million wholesale shipment business for us today, so we were up against that launch. That launch continues to be very strong and even being up against that launch, our business was ahead for the year about 3%.

Just to remind everyone, we are coming off of three years of 20% plus growth in our fragrance business driven by new launches which started with the Euphoria, continued with CK IN2U last year and for the second half of last year Calvin Klein Man launched.

For the fall we have a major fragrance launch planned; it’s Secret Obsession. The campaign also features Eva Mendez and the advanced PR and media buzz surrounding the campaign has been outstanding. It’s been talked about throughout on the internet, there’s been numerous articles written about our campaign. It’s a very risqué campaign and given that the excitement that’s being built around this launch, we believe Secret Obsession will be a major launch for us for fall. So we have high hopes for our fragrance business as we turn to the second half of the year as well.

Moving to our other licensees, another one of our major licensees is G3. We just recently announced the signing of a new license agreement with G3. We’ve entered into the women’s Better sportswear license for the Americas. They are taking over the [Kellwood] position on that business. We believe that this is a major untapped opportunity for the brand. G3 is a terrific partner. They have a proven track record with the Calvin Klein brand.

To remind everyone they are our licensee for women’s dresses; the women’s dress business which launched last year is well ahead of all of our plans. It’s up against budget about 30% where we planned it and it’s up against the prior year which was a partial year; it’s up over 75%. They are also our women’s suit licensee and that business is up 15% through the first half of the year. They’ve done extraordinarily well positioning that product.

The product offering is terrific. They are our coat licensee for men and for women’s and we have one of the largest coat positions in department stores with Calvin Klein brand that they helped to build. And this year they’re also launching performance active sportswear on the women’s side of the business. So G3 has been a key strategic partner for us. The agreement that we signed with them has provided them with new minimum royalties that they believe they can exceed but we are financially protected on that transaction as Kellwood continues to be our financial backstop against the minimum royalties that they originally signed in their license agreement.

So from a financial point of view we are in as good or better position then we were before the signing of this new license and we have the opportunity with a very experienced Calvin Klein licensee who we have a great deal of confidence in to really build this business over the next five years to a business that we think can approach $200 million at wholesale. So again very happy about that business. G3 has done an excellent job for us.

Another licensee has performed extraordinarily well for us is Peerless. They are our men’s tailored clothing provider. Their business through the first half of the year is up over 35%. The tailored clothing business for us is very strong with Macy’s. We have a major position there and we have new product offerings, a range of product at Dillard’s that has also been extremely strong for us. So the business there continues to be very strong.

Continuing with Calvin Klein, on the businesses that we operate, our men’s Better sportswear business continues to perform exceedingly well. Shipments and profits are ahead of plan and the prior year. At department store Calvin Klein continues to be one of the best performing men’s collection sports businesses on the floor and that’s measured on a sales per square foot basis and a maintained gross margin basis. So that business continues to have momentum, continues to grow and we feel very good about it.

Moving to our Calvin Klein outlet retail business, again we had a very strong quarter with that business. We continue to have great momentum there. Our comps for the second quarter were up 9%. Our comps in the first quarter were up about 10%. Margins are well ahead of last year. This business is one of our most profitable retail formats and is on the way to becoming our most profitable operating division. These stores average sales per square foot of about $550 and in-store four wall profitability of well in excess of 30%.

We currently operate a little bit more than 85 of the Calvin Klein outlet stores and we believe the opportunity throughout the United States is close to 135 to 140. We announced in our first quarter that we would be closing our Geoffrey Beene retail division of approximately 100 stores. Of those 100 stores 25 of those stores will be converted to the Calvin Klein format by year end.

The vast majority of those conversions will take place during the month of January. The Geoffrey Beene liquidation and close down is moving well ahead of plan. It’s going exceedingly well. We’re on target to open the Calvin Klein stores. We believe by taking these 25 Geoffrey Beene stores and converting them to the Calvin Klein platform will accelerate the Calvin Klein growth and add to the profitability of what is our most profitable retail division.

Moving now to our heritage businesses, our heritage businesses in the United States continue to be impacted by the difficult environment. Overall our combined wholesale and retail business posted 2% sales decline and a 270 basis point decline in operating margins. The operating margin contraction was due to slightly lower gross margin and a de-leveraging of the operating expenses.

Speaking to the components of the legacy businesses, on the dress furnishing side of the business we continue to perform very well at retail. Our dress shirt and neckwear businesses at retail are running ahead on a comp store basis at all of our retail accounts. The dress shirt component of our retail partners’ businesses, our major retailers, and dress furnishings continues to be one of the best performing departments on the floor.

They are for the most part just about all of our retailer accounts for the department are running positive comp store trends and our business throughout our major customers are running 200 to 300 basis points higher comp store trend in the dress shirt department. So we are clearly driving the performance of dress shirts and neckwear throughout America. Very strong performance at retail both from a sales performance and a margin point of view.

During the second quarter we did see some inventory management going on, on the part of our retail partners. We did see retailers tightly managing the inventory intake and attempting to balance their overall inventory position. We saw about $8 million in sales that were planned to be shipped in the last 10 days of July that were actually shipped in the first five days of August. So there was some roll over of goods; about $8 million. We are monitoring this situation very closely and believe that this push out is a one-time event.

Its not a push out that will continue for the balance of the year. We believe as we move into the second half, particularly with the back to school selling season and with the holiday selling season, that our performance is so strong that we really believe the retailers will be pulling the goods out at the beginning of the shipping windows as opposed to the end of the shipping windows. We believe it’s such a strong selling season particularly for dress shirts that we don’t believe that we’ll see this push out continue into the third quarter or fourth quarter.

The impact was about $8 million and it would be about $8 million for the year but at this point in time we don’t see as slowdown going forward on that. It was something that we dealt with, we absorbed in the quarter and we’re able to still deliver our earnings results.

On the wholesale sportswear side of the business our sales plans are in line with our customers’ reduced sales expectations and their reduced overall open to buy position. With the exception of the Mervyn’s and Boscov’s Chapter 11 disruption, our wholesale sportswear business met their second quarter sales plans and profit expectations. So we are right on plan with where we felt we would be in our sportswear business. We took those open to buy positions down in our sales expectations down with it and we are right on target to deliver our business as we go forward into the second half.

Our heritage brand in outlet business continued to be a challenge for us in the second quarter. We had planned our comp stores at about negative 2%. Our actual comp store sales declined about 5% in the quarter. That put pressure on our retail gross margins and it also put significant pressure on our operating expenses as there was a de-levering of expense. So when we look at our wholesale businesses we came in slightly worse then we thought we would but Calvin Klein more than made up for that shortfall in delivering our results.

I’d like to take a minute and talk about our marketing for our brands; we continue to invest in our brands. I think you see the Calvin Klein advertising everywhere and I think you’ve also seen our heritage business continue to make the investment in our IZOD venues and in Arrow brands to continue to invest in those brands.

As we move into the second half of the year, our total second half of the year marketing spend is being planned flat 2007 versus 2008. However, we are shifting $10 million or $0.12 of our marketing spend into the third quarter. There’s a couple of major events that are going on that we needed to take advantage from a marketing point of view and we made a decision on the last 60 days, particularly on our heritage brands to invest in those venues to really support our brand development.

Some of the events were the Olympics. Our heritage brands has a tremendous opportunity to make a very opportunistic media buy basically on television, some supporting print campaign with it, but basically on television with Arrow, IZOD and Van Heusen to really take advantage of this once in every four year event for the summer Olympics. We think we’ve gotten great marketing buzz but also great PR buzz associated with the advertising.

We know it was the right decision for our brands and to accelerate that expenditure into the third quarter and we’ll be reducing our fourth quarter expenditures at a similar amount. In addition this year we’re celebrating the Calvin Klein 40th Anniversary Celebration. That’s a major event for us. It will take place during the month of September. We have a number of events going on and it’s targeted in association with Fashion Week that’ll take place in September.

We also have a number of major product launches that I touched on for Calvin Klein; fragrance, the Secret Obsession launch will be a major marketing campaign, Seductive Comfort, our underwear campaign, both with Eva Mendez. Those two launches will take place in the third quarter as well. We are putting our marketing dollars behind that and we’re expanding our world of Calvin Klein event with Macy’s. That event will take place in the latter part of September.

It’s being expanded to all Macy’s doors from 300 doors last year. So just in summary, our marketing spend for the year and for the second half is being planned flat but we are having shifting marketing dollars out of the fourth quarter and into the third quarter to the tune of about $10 million. It impacts us about $0.12 per share in the third quarter and it is the sole reason why our growth in the third quarter is not as advanced as we would have normally projected it to be and why our advance in earnings per share for the fourth quarter is so advanced with a $0.12 benefit that we’ll have there for reduced marketing spend.

And with that I’m going to turn it over to Michael Shaffer, and I’ll come back with some closing comments on the opportunities and risks we see in the second half of the year.

Michael Shaffer

Thanks Emanuel, the comments I’m about to make include non-GAAP comparisons related to the Geoffrey Beene outlet store shutdown and are reconciled in our press release.

Let me begin by reviewing our results for the second quarter, our revenues for the quarter were up 2% to approximately $561 million. Strong performance in our Calvin Klein licensing business which was 30% ahead of last year more then offset shortfalls in our combined wholesale and retail businesses.

Our combined wholesale and retail business revenues were down $11 million or 2% for the prior year as a result of the difficult economic climate, bankruptcies, and negative heritage outlet comp store sales. Our gross margin on sales for the combined wholesale and retail businesses was approximately flat to the prior year as a result of our tight inventory controls. On a total company basis gross margin was up 190 basis points to the prior year reflecting the benefit of the strong Calvin Klein licensing performance.

Operating expenses for the second quarter for the combined wholesale and retail businesses increased 250 basis points from the prior year and include start-up costs of $5 million as well as the de-leveraging of expenses as a result of sales declines.

Operating expenses for the total company increased 240 basis points from the prior year as a decrease in the Calvin Klein operating expenses margins in the quarter helped offset a portion of the increase in the wholesale and retail businesses.

Earnings for the quarter were $0.66 at the top end of our guidance. From a segment point of view, the Calvin Klein licensing business delivered very strong operating income growth of 47% while our combined wholesale and retail businesses posted operating profit declines to the prior year of 30%; the net affect of this being a decline in total operating income margins of 50 basis points versus the prior year.

As we look forward we are maintaining our guidance for the year at $3.32 to $3.41. Our revenues for the year are projected to be $2.56 billion to $2.58 billion, approximately 6% greater then the prior year. The revenue increase is being driven by the Calvin Klein licensing businesses, which is planned to increase 15% for the year.

Our combined wholesale and retail businesses are planned to increase 3% to 5% for the full year. This increase reflects the additional revenue from the Timberland men’s Better sportswear business which was launched mid-year 2008, a full year of IZOD women’s wholesale sportswear sales, along with the sales benefit from the annualization of the Calvin Klein specialty stores opened last year plus the specialty stores opened this year.

On the retail revenue projections are based on legacy comp store sales projected at negative 3% to negative 4% for the year, and our Calvin Klein comp stores planned at plus 8% for the year.

Operating margins for the year for the total company are planned to decrease 60 to 80 basis points with Calvin Klein operating margins increasing 260 to 280 basis points and our combined wholesale and retail businesses declining 100 to 130 basis points driven by sales declines and the de-leveraging of expenses.

As we look to the third quarter, earnings per share is projected at $1.07 to $1.13, an increase of 2% to 8% versus the prior year. Third quarter revenues are projected at $730 million to $740 million or 5% to 6% greater then the prior year. For the third quarter we’re projecting our Calvin Klein licensing business to have revenue growth of 9% to 11% and our combined wholesale and retail businesses to grow between 2% and 4%.

Comp store sales for the third quarter are projected at negative 2% to negative 3% for our legacy outlets and plus 7% for Calvin Klein outlets. Third quarter gross margin for the company is expected to increase 70 to 90 basis points driven by Calvin Klein licensing growth which carries a 100% gross margin coupled with an increase in the combined wholesale and retail business gross margin of 60 to 80 basis points as sell-throughs for our products remain above our plan.

A significant impact to the third quarter results is a shift of $10 million or approximately $0.12 of advertising spending from the fourth quarter into the third quarter versus last year. This third quarter increase is supporting planned activities surrounding the celebration of Calvin Klein’s 40th Anniversary in September as well as having made opportunistic media purchases for our legacy brands during the Olympics.

As a result, income margins for the third quarter for the total company will decrease 180 to 200 basis points driven by similar declines in the operating margins in both the combined wholesale and retail business as well as declines in the Calvin Klein licensing business.

Overall our marketing spend for the second half of 2008 will remain relatively flat. I would like to point out that we continue to plan our tax rate for the year at 36.5% to 37%. In the third quarter we expect our tax rate to decline to 32.5% to 33% as a result of certain discreet tax items that we recognized in the quarter.

Lastly we continue even in this difficult environment to maintain our cash flow projections at $80 million to $90 million for the year and project to end 2008 with approximately $350 million in cash.

And with that, I’ll turn the call back over to Emanuel.

Emanuel Chirico

Thanks Michael, what I’d like to do is just put the business and the guidance into some type of perspective to really just talk about the risks and opportunity associated with the guidance.

When we look at the Calvin Klein licensing business revenues for the first half of the year, royalty revenues were up about 23%. We’re planning the second half at a rate of 10% growth overall. Given the trend of the business, there’s clearly opportunity to do better then our current estimate that’s out there. We believe it’s a conservative estimate. We believe in the first half there are a number of things that won’t anniversary and that we are up with some of our licensing partners against much stronger business and some product launches last year.

But on balance, there’s clearly upside against the royalty revenues. Somewhere I think, rather then 10% we could be closer to 15% when you take it all in and I think that clearly gives us upside against any risk that we might have in our heritage businesses.

And to talk about that, let me just speak about our dress furnishing business, I mentioned how strong the business is at retail. We continue to feel good about how that business is performing. Our platform and our operating platform there works very well. Our sales projections in the second half is the wholesale shipments will grow 25 to 4%; that’s totally inline with our retail partners’ projections of what they see for sales for back to school and the holiday selling season.

So we really see minimal risk when we look at the dress furnishing business. On the wholesale sportswear side of the business our new launches, both Timberland and IZOD women’s are having strong reception at retail. The IZOD women’s business is now, has a full 12 months’ worth of results and the performance has been very strong at retail. Continue to get good results there and our Timberland business which just launched, the reaction to the product has been positive. The initial selling, we had a small launch with the product associated with Father’s Day, was very, very positive.

But again, we’re just beginning to ship those goods, but that business seems to be off to a good start in a tough environment. Our heritage sportswear businesses are being planned down for the second half about 3% to 4%. That’s inline with our retailers’ planned orders, with their planned bookings and we’ve been on plan with these businesses throughout the year.

We are looking for some improvement in the fourth quarter. It think that’s being driven by a couple of things, particularly that we are anniversarying much tougher business, last year’s fourth quarter with our sportswear business. We began to feel the pain of last year’s results in the fourth quarter with orders being reduced so we think we really have a much easier comparison there.

But even overall looking at the second half are being planned down 3% to 4% and we think there’s minimal risk against our wholesale sportswear business. On our heritage outlet business, year to date comps are negative 5%. They’ve been pretty consistent give or take 50 basis points from the first quarter to the second quarter. We are planning that business at about negative 2% to negative 3% for the balance of the year.

The improvement is being driven of our belief that we will do better in the second half because our comparisons are much easier in the second half of the year particularly beginning at the last week of August. Just to put it into perspective, our prior year first half comps overall for our heritage businesses were up about 2.5% and our prior year second half comps were down about 2.5%.

That 500 basis point swing in business we believe should give us some improvement in the trend of comps. We’re not looking to get it all; we’re looking to get about half of it. So we’re taking our trend from negative 5% to about negative 2.5%.

With initial selling in August has improved somewhat over second quarter results on trend is about negative 3% right now and we really have not anniversaried the easier comparisons. That will begin starting next week so more to follow there.

When we look at our heritage businesses, whatever risk that we might see there we see the Calvin Klein business having the opportunity to offset most of that and if not all of that. So we feel very good how we have the business planned for the second half of the year. We believe our numbers are very achievable. We do recognize when you look at the bottom line earnings per share we are looking for substantial growth in the fourth quarter and not as much growth in the third quarter but the entirety of that differential is the $0.12 or $10 million marketing spend that we’re accelerating into the third quarter.

If marketing spend was at the same levels in this yea’s third quarter as last year’s third quarter, we’d be looking for 15% to 20% earnings growth in the third quarter and a similar amount in the fourth quarter and the only real variance that you’re seeing such improvement in the fourth quarter is driven by that $0.12 a share shift in marketing associated with our brands.

And with that, we’re ready to take your questions.

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