PVH CORP DE

Previous wording

Inflationary pressures negatively impacted our revenue and earnings in 2023 and have continued through the first half of 2024, although to a lesser extent than in 2023. These include (i) increased product costs for the first half of 2023, (ii) increased labor costs and (iii) a slowdown in consumer demand for apparel and related products, as consumers have reduced discretionary spend and certain wholesale customers have taken a more cautious approach, particularly in North America beginning in the first half of 2023 and in Europe beginning in the second half of 2023. We expect inflationary pressures to continue to negatively impact our revenue and earnings in 2024, although to a lesser extent than in 2023, as we benefit from the decline in raw material costs that began in the second half of 2023.

Current wording

Inflationary pressures negatively impacted our revenue and earnings in 2023 and have continued through the first nine months of 2024, although to a lesser extent than in 2023. These include (i) increased product costs for the first half of 2023, (ii) increased labor costs and (iii) a slowdown in consumer demand for apparel and related products, as consumers have reduced discretionary spending and certain wholesale customers have taken a more cautious approach, particularly in North America beginning in the first half of 2023 and in Europe beginning in the second half of 2023. We do not expect inflationary pressures to have a negative impact on our revenue and earnings for the remainder of 2024.

Previous wording

Israel-Hamas War, Red Sea Shipping Disruption and War in Ukraine

Current wording

Israel-Hamas War, Supply Chain Disruptions and War in Ukraine

Previous wording

The recent attacks on commercial shipping vessels in the Red Sea have led to disruption and instability in global supply chains, which have resulted in shipment delays that are impacting, and could continue to impact, our inventory and sales volume. Shipping delays have also resulted in, and may continue to result in, increased freight costs, for reasons including the need to rely on more expensive shipping routes and shipping methods (such as air freight). Such impacts did not have a material impact on our business in 2023 or in the first half of 2024, and are not expected to have a material impact on our revenue and net income for the remainder of 2024. We continue to monitor these delays and other potential disruptions in our supply chain and are implementing mitigation plans as needed.

Current wording

Attacks on commercial shipping vessels in the Red Sea that began in the fourth quarter of 2023 have led to disruption and instability in global supply chains, which have resulted in shipment delays that are impacting, and could continue to impact, our inventory and sales volume. Shipping delays have also resulted in, and may continue to result in, increased freight costs, for reasons including the need to rely on more expensive shipping routes and shipping methods (such as air freight). Such impacts did not have a material impact on our business in 2023 or in the first nine months of 2024.

Previous wording

There continues to be uncertainty in the current macroeconomic environment due to the above-mentioned items. Our 2024 outlook assumes no material worsening of current conditions. Our revenue and earnings in 2024 may be subject to significant change as a result of these and other factors.

Current wording

There continues to be uncertainty in the current macroeconomic environment due to the above-mentioned items. Our 2024 outlook assumes no material worsening of current conditions. Our revenue and earnings for the remainder of 2024 may be subject to significant change as a result of these and other factors.

Previous wording

We generate net sales from (i) the wholesale distribution to traditional retailers (both for stores and digital operations), pure play digital commerce retailers, franchisees, licensees and distributors of branded sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, dress shirts, handbags, accessories, footwear and other related products under owned and licensed trademarks, and (ii) the sale of certain of these products through (a) approximately 1,400 Company-operated free-standing store locations worldwide under our TOMMY HILFIGER and Calvin Klein trademarks, (b) approximately 1,400 Company-operated shop-in-shop/concession locations worldwide under our TOMMY HILFIGER and Calvin Klein trademarks, and (c) digital commerce sites worldwide, under our TOMMY HILFIGER and Calvin Klein trademarks. Additionally, we generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. We manage our operations through our operating divisions, which are presented as the following reportable segments: (i) Tommy Hilfiger North America; (ii) Tommy Hilfiger International; (iii) Calvin Klein North America; (iv) Calvin Klein International; and (v) Heritage Brands Wholesale.

Current wording

We generate net sales from (i) the wholesale distribution to traditional retailers (both for stores and digital operations), pure play digital commerce retailers, franchisees, licensees and distributors of branded sportswear (casual apparel), jeanswear, performance apparel, intimate apparel, underwear, swimwear, dress shirts, handbags, accessories, footwear and other related products under owned and licensed trademarks, and (ii) the sale of certain of these products through (a) approximately 1,400 Company-operated free-standing store locations worldwide under our TOMMY HILFIGER and Calvin Klein trademarks, (b) approximately 1,500 Company-operated shop-in-shop/concession locations worldwide under our TOMMY HILFIGER and Calvin Klein trademarks, and (c) digital commerce sites worldwide, under our TOMMY HILFIGER and Calvin Klein trademarks. Additionally, we generate royalty, advertising and other revenue from fees for licensing the use of our trademarks. We manage our operations through our operating divisions, which are presented as the following reportable segments: (i) Tommy Hilfiger North America; (ii) Tommy Hilfiger International; (iii) Calvin Klein North America; (iv) Calvin Klein International; and (v) Heritage Brands Wholesale.

Previous wording

•We embarked on a multi-year initiative to simplify our operating model by centralizing certain processes, and improving systems and automation to drive more efficient and cost-effective ways of working across the organization (the “Growth Driver 5 Actions”). The initiative is expected to result in annual cost savings of approximately $200 million to $300 million, net of continued strategic investments by 2026, with the actions to support it largely completed by the end of 2025. We recorded pre-tax costs of $15 million during the second quarter of 2024, in connection with this initiative, consisting principally of severance. We expect to incur additional pre-tax costs of approximately $20 million during the remainder of 2024, consisting principally of severance. We expect to incur additional costs in 2025, however the additional costs cannot be quantified at this time. Please see Note 14, “Exit Activity Costs,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.

Current wording

•We embarked on a multi-year initiative beginning in the second quarter of 2024 to simplify our operating model by centralizing certain processes, and improving systems and automation to drive more efficient and cost-effective ways of working across the organization (the “Growth Driver 5 Actions”). The initiative is expected to result in annual cost savings of approximately $200 million to $300 million, net of continued strategic investments by 2026, with the actions to support it largely completed by the end of 2025. We recorded pre-tax costs of $18 million during the thirty-nine weeks ended November 3, 2024 in connection with this initiative, including (i) $28 million of costs consisting principally of severance, and (ii) a $10 million gain on the sale of a warehouse and distribution center. We expect to incur additional pre-tax costs of approximately $15 million in the fourth quarter of 2024, consisting principally of severance. We expect to incur additional costs in 2025, however the additional costs cannot be quantified at this time. Please see Note 14, “Exit Activity Costs,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.

Previous wording

Due to the above seasonal factors, our results of operations for the thirteen and twenty-six weeks ended August 4, 2024 are not necessarily indicative of those for a full fiscal year.

Current wording

Due to the above seasonal factors, our results of operations for the thirteen and thirty-nine weeks ended November 3, 2024 are not necessarily indicative of those for a full fiscal year.

Previous wording

Total revenue in the second quarter of 2024 was $2.074 billion as compared to $2.207 billion in the second quarter of the prior year. The overall decrease in revenue of $133 million, or 6%, included (i) a 3% decline related to the Heritage Brands intimates transaction and (ii) a 1% negative impact of foreign currency translation, with the following revenue changes in our segments:

Current wording

Total revenue in the third quarter of 2024 was $2.255 billion compared to $2.363 billion in the third quarter of the prior year. The overall decrease in revenue of $108 million, or 5%, included (i) a 2% decline related to the Heritage Brands intimates transaction and (ii) a 1% positive impact of foreign currency translation, with the following revenue changes in our segments:

Previous wording

•The net reduction of an aggregate $46 million of revenue, or a 4% decrease compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a negative impact of $12 million, or 1%, related to foreign currency translation. Tommy Hilfiger International segment revenue decreased 6% (including a 1% negative foreign currency impact) driven by a revenue decline in Europe, including the continuation of our planned strategic reduction to drive overall higher quality of sales in the region, which weighed more heavily on Tommy Hilfiger revenue given the size of the business in Europe. Revenue in our Tommy Hilfiger North America segment increased 1%.

Current wording

•The net reduction of an aggregate $9 million of revenue, or a 1% decrease compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a positive impact of $20 million, or 2%, related to foreign currency translation. Tommy Hilfiger International segment revenue was flat (including a 2% positive foreign currency impact). Revenue in our Tommy Hilfiger North America segment decreased 3%.

Previous wording

•The net reduction of an aggregate $11 million of revenue, or a 1% decrease compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments, which included a negative impact of $24 million, or 1%, related to foreign currency translation. Calvin Klein International segment revenue decreased 2% (including a 2% negative foreign currency impact). Revenue in our Calvin Klein North America segment increased 2%.

Current wording

•The net reduction of an aggregate $28 million of revenue, or a 3% decrease compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments, which included a positive impact of $11 million, or 1%, related to foreign currency translation. Calvin Klein International segment revenue increased 1% (including a 2% positive foreign currency impact). Revenue in our Calvin Klein North America segment decreased 9% as the prior year period benefited from a shift in the timing of wholesale shipments from the fourth quarter into the third quarter.

Previous wording

•The reduction of $77 million of revenue, or a 60% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment, which included a 56% decline resulting from the Heritage Brands intimates transaction.

Current wording

•The reduction of $71 million of revenue, or a 54% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment, which included a 44% decline resulting from the Heritage Brands intimates transaction.

Previous wording

Our revenue through our direct-to-consumer distribution channel in the second quarter of 2024 decreased 5% compared to the prior year period, including a 2% negative foreign currency impact. Revenue in our owned and operated stores decreased 4% compared to the prior year period, including a 2% negative foreign currency impact, primarily driven by recent softness in retail traffic trends. Sales through our directly operated digital commerce businesses decreased 6%, including a 2% negative foreign currency impact, primarily due to the continuation of our planned strategic reduction in revenue in Europe to drive overall higher quality of sales in the region. Our revenue through our wholesale distribution channel decreased 9% in the second quarter of 2024, including a 1% negative foreign currency impact, primarily due to (i) a 7% decline resulting from the Heritage Brands intimates transaction and (ii) the continued planned strategic reduction in revenue in Europe.

Current wording

Our revenue through our direct-to-consumer distribution channel in the third quarter of 2024 was flat compared to the prior year period, including a 1% positive foreign currency impact. Revenue in our owned and operated stores increased 1% compared to the prior year period, including a 1% positive foreign currency impact. Sales through our directly operated digital commerce businesses decreased 1%, including a 2% positive foreign currency impact, primarily due to the continuation of our planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region. Our revenue through our wholesale distribution channel decreased 8% in the third quarter of 2024, including a 1% positive foreign currency impact, primarily due to (i) a 4% decline resulting from the Heritage Brands intimates transaction, (ii) the continued planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region and (iii) the impact of the timing of wholesale shipments in North America discussed above.

Previous wording

Gross profit in the second quarter of 2024 was $1.246 billion, or 60.1% of total revenue, as compared to $1.272 billion, or 57.6% of total revenue, in the second quarter of the prior year. The 250 basis point increase was primarily driven by (i) lower product costs compared to the prior year period, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher gross margins, (iii) a reduction in sales to lower margin wholesale accounts, primarily in Europe and (iv) the impact of the reduction in revenue as a result of the Heritage Brands intimates transaction, as the revenue from the Heritage Brands intimates business carried lower gross margins.

Current wording

Gross profit in the third quarter of 2024 was $1.317 billion, or 58.4% of total revenue, compared to $1.339 billion, or 56.7% of total revenue, in the third quarter of the prior year. The 170 basis point increase was driven by (i) lower product costs as compared to the prior year period, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher gross margins, (iii) a reduction in sales to lower margin wholesale accounts, primarily in Europe and (iv) the impact of the reduction in revenue as a result of the Heritage Brands intimates transaction, as the revenue from the Heritage Brands intimates business carried lower gross margins.

Previous wording

SG&A expenses in the second quarter of 2024 were $1.083 billion, or 52.2% of total revenue, as compared to $1.138 billion, or 51.6% of total revenue, in the second quarter of the prior year. The 60 basis point increase was primarily driven by (i) the impact of the change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher SG&A expenses as a percentage of revenue, (ii) the impact from the deleveraging of expenses resulting from the decline in revenue in the second quarter of 2024 and (iii) costs incurred in the second quarter of 2024 in connection with the Growth Driver 5 Actions. These increases were partly offset by the favorable impact of (i) the 2022 costs savings initiative and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses.

Current wording

SG&A expenses in the third quarter of 2024 were $1.154 billion, or 51.2% of total revenue, compared to $1.124 billion, or 47.6% of total revenue, in the third quarter of the prior year. The 360 basis point increase was primarily driven by (i) costs incurred in the third quarter of 2024 in connection with the Mr. Hilfiger amendment, (ii) the impact of the change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher SG&A expenses as a percentage of revenue, (iii) the impact from the deleveraging of expenses resulting from the decline in revenue in the third quarter of 2024 and (iv) costs incurred in the third quarter of 2024 in connection with the Growth Driver 5 Actions. These increases were partially offset by the favorable impact of (i) the 2022 costs savings initiative and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses.

Previous wording

Non-service related pension and postretirement income in the second quarter of 2024 was approximately $400,000 as compared to approximately $300,000 in the second quarter of the prior year. Please see Note 6, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.

Current wording

Non-service related pension and postretirement income in the third quarter of 2024 was approximately $400,000 as compared to approximately $500,000 in the third quarter of the prior year. Please see Note 6, “Retirement and Benefit Plans,” in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.

Previous wording

The equity in net income of unconsolidated affiliates was $11 million in the second quarter of 2024 as compared to $9 million in the second quarter of the prior year. These amounts relate to our share of income (loss) from (i) our joint venture for the TOMMY HILFIGERand Calvin Klein brands, and certain licensed and formerly PVH-owned trademarks in Mexico, (ii) our joint venture for the TOMMY HILFIGER and Calvin Klein brands in India, (iii) our joint venture for the TOMMY HILFIGER brand in Brazil and (iv) our PVH Legwear LLC joint venture for the TOMMY HILFIGERand Calvin Klein brands and certain licensed and formerly PVH-owned trademarks in the United States and Canada. Our investments in the joint ventures are being accounted for under the equity method of accounting.

Current wording

The equity in net income of unconsolidated affiliates was $11 million in the third quarter of 2024 compared to $14 million in the third quarter of the prior year. These amounts relate to our share of income (loss) from (i) our joint venture for the TOMMY HILFIGERand Calvin Klein brands, and certain licensed and formerly PVH-owned trademarks in Mexico, (ii) our joint venture for the TOMMY HILFIGER and Calvin Klein brands in India, (iii) our joint venture for the TOMMY HILFIGER brand in Brazil and (iv) our PVH Legwear LLC joint venture for the TOMMY HILFIGERand Calvin Klein brands and certain licensed and formerly PVH-owned trademarks in the United States and Canada. Our investments in the joint ventures are being accounted for under the equity method of accounting.

Previous wording

Interest expense, net decreased to $19 million in the second quarter of 2024 from $24 million in the second quarter of the prior year primarily due to (i) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023 and (ii) an increase in interest income as compared to the prior year period.

Current wording

Interest expense, net decreased to $16 million in the third quarter of 2024 from $22 million in the third quarter of the prior year primarily due to (i) an increase in interest income resulting from higher levels of invested cash and higher interest rates as compared to the prior year period and (ii) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023.

Previous wording

The effective income tax rate for the twenty-six weeks ended August 4, 2024 was 9.6% compared to 22.4% in the twenty-six week period of the prior year. The decrease in the effective income tax rate was primarily due to a favorable change in our uncertain tax positions resulting in a benefit to our effective tax rate of 9.6% from the settlement of a multi-year audit in an international jurisdiction.

Current wording

The effective income tax rate for the third quarter of 2024 was 21.0% compared to 22.2% in the third quarter of the prior year. The decrease in the effective income tax rate was primarily due to a change in the mix of international and domestic earnings.

Previous wording

Total revenue in the twenty-six weeks ended August 4, 2024 was $4.026 billion as compared to $4.365 billion in the twenty-six week period of the prior year. The overall decrease in revenue of $339 million, or 8%, included (i) a 3% decline related to the Heritage Brands intimates transaction and (ii) a 1% negative impact of foreign currency translation, with the following revenue changes in our segments:

Current wording

Total revenue in the thirty-nine weeks ended November 3, 2024 was $6.281 billion compared to $6.728 billion in the thirty-nine week period of the prior year. The impact of foreign currency translation on our revenue in the thirty-nine week period was not significant. The overall decrease in revenue of $447 million, or 7%, included a 3% decline related to the Heritage Brands intimates transaction with the following revenue changes in our segments:

Previous wording

•The net reduction of an aggregate $157 million of revenue, or a 7% decrease compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments, which included a negative impact of $20 million, or 1%, related to foreign currency translation. Tommy Hilfiger International segment revenue decreased 10% (including a 1% negative foreign currency impact) driven by a revenue decline in Europe, including our planned strategic reduction to drive overall higher quality of sales in the region, which weighed more heavily on Tommy Hilfiger revenue given the size of the business in Europe. Revenue in our Tommy Hilfiger North America segment increased 1%.

Current wording

•The net reduction of an aggregate $166 million of revenue, or a 5% decrease compared to the prior year period, attributable to our Tommy Hilfiger International and Tommy Hilfiger North America segments. Tommy Hilfiger International segment revenue decreased 7% driven by a revenue decline in Europe, including our planned strategic reduction to drive overall higher quality of sales in the region, which weighed more heavily on Tommy Hilfiger revenue given the size of the business in Europe. Revenue in our Tommy Hilfiger North America segment was flat. The impact of foreign currency translation on our Tommy Hilfiger segments’ revenue in the period was not significant.

Previous wording

•The net reduction of an aggregate $10 million of revenue, or a 1% decrease compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments, which included a negative impact of $13 million, or 1%, related to foreign currency translation. Calvin Klein International segment revenue decreased 2% (including a 2% negative foreign currency impact). Revenue in our Calvin Klein North America segment increased 1%.

Current wording

•The reduction of an aggregate $39 million of revenue, or a 1% decrease compared to the prior year period, attributable to our Calvin Klein International and Calvin Klein North America segments, which included a negative impact of $13 million, or 1%, related to foreign currency translation. Calvin Klein International segment revenue decreased 1% (including a 1% negative foreign currency impact). Revenue in our Calvin Klein North America segment decreased 2%.

Previous wording

•The reduction of $171 million of revenue, or a 63% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment, which includes a 51% decline resulting from the Heritage Brands intimates transaction.

Current wording

•The reduction of $242 million of revenue, or a 60% decrease compared to the prior year period, attributable to our Heritage Brands Wholesale segment, which includes a 48% decline resulting from the Heritage Brands intimates transaction.

Previous wording

Our revenue through our direct-to-consumer distribution channel in the twenty-six weeks ended August 4, 2024 decreased 2%, including a 2% negative foreign currency impact. Revenue in our owned and operated stores decreased 1% compared to the prior year period, including a 2% negative foreign currency impact. Sales through our directly operated digital commerce businesses decreased 6%, including a 2% negative foreign currency impact, primarily due to our planned strategic reduction in revenue in Europe to drive overall higher quality of sales in the region. Our revenue through our wholesale distribution channel decreased 13%, including a 1% negative foreign currency impact, primarily due to (i) a 6% decline resulting from the Heritage Brands intimates transaction and (ii) the planned strategic reduction in revenue in Europe.

Current wording

Our revenue through our direct-to-consumer distribution channel in the thirty-nine weeks ended November 3, 2024 decreased 1%, including a 1% negative foreign currency impact. Revenue in our owned and operated stores was flat compared to the prior year period, including a 1% negative foreign currency impact. Sales through our directly operated digital commerce businesses decreased 5%, including a 1% negative foreign currency impact, primarily due to our planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region. Our revenue through our wholesale distribution channel decreased 11%, primarily due to (i) a 6% decline resulting from the Heritage Brands intimates transaction and (ii) the planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region.

Previous wording

We currently expect revenue for the full year 2024 to decrease approximately 6% to 7% compared to 2023, primarily due to (i) an expected revenue decline in the Tommy Hilfiger International segment driven by our European wholesale business, (ii) a 2% decline related to the Heritage Brands intimates transaction and (iii) a 1% decline related to the 53rd week in 2023. The impact of foreign currency translation on our revenue in 2024 is not expected to be significant.

Current wording

We currently expect revenue for the fourth quarter of 2024 to decrease approximately 6% to 7%, inclusive of the negative impact of approximately 2% related to foreign currency translation, primarily due to (i) an expected revenue decline in the Tommy Hilfiger International segment driven by the planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region, (ii) a 1% decline related to the Heritage Brands intimates transaction and (iii) a 3% decline related to the 53rd week in 2023. We currently expect revenue for the full year 2024 to decrease approximately 6% to 7% primarily due to (i) an expected revenue decline in the Tommy Hilfiger International segment driven by the planned strategic reduction of sales in Europe to drive overall higher quality of sales in the region, (ii) a 2% decline related to the Heritage Brands intimates transaction and (iii) a 1% decline related to the 53rd week in 2023. The impact of foreign currency translation on our revenue for full year 2024 is not expected to be significant.

Previous wording

Gross profit in the twenty-six weeks ended August 4, 2024 was $2.445 billion, or 60.7% of total revenue, as compared to $2.523 billion, or 57.8% of total revenue, in the twenty-six week period of the prior year. The 290 basis point increase was primarily driven by (i) lower product costs compared to the prior year period, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher gross margins, (iii) a reduction in sales to lower margin wholesale accounts, primarily in Europe and (iv) the impact of the reduction in revenue as a result of the Heritage Brands intimates transaction, as the revenue from the Heritage Brands intimates business carried lower gross margins.

Current wording

Gross profit in the thirty-nine weeks ended November 3, 2024 was $3.761 billion, or 59.9% of total revenue, compared to $3.862 billion, or 57.4% of total revenue, in the thirty-nine week period of the prior year. The 250 basis point increase was primarily driven by (i) lower product costs compared to the prior year period, (ii) the impact of a change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher gross margins, (iii) a reduction in sales to lower margin wholesale accounts, primarily in Europe and (iv) the impact of the reduction in revenue as a result of the Heritage Brands intimates transaction, as the revenue from the Heritage Brands intimates business carried lower gross margins.

Previous wording

We currently expect that gross margin for the full year 2024 will increase by approximately 150 basis points as compared to 2023. Our expectation for 2024 includes increases primarily as a result of (i) lower product costs as compared to 2023, which benefits us more significantly in the first half of the year, (ii) the above-mentioned change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2023 and (iii) the above-mentioned reduction in revenue as a result of the Heritage Brands intimates transaction.

Current wording

We currently expect that gross margin for the full year 2024 will increase by approximately 120 basis points compared to 2023. Our expectation for full year 2024 includes increases primarily as a result of (i) lower product costs as compared to 2023, which benefited us more significantly in the first half of the year, (ii) the change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2023, as our direct-to-consumer distribution channel is expected to be a larger proportion of total revenue in 2024 and carries higher gross margins and (iii) the above-mentioned reduction in revenue as a result of the Heritage Brands intimates transaction. These increases are expected to be partially offset by increased promotional selling in the fourth quarter of 2024 due to continued softness in the consumer backdrop in the United States and China.

Previous wording

SG&A expenses in the twenty-six weeks ended August 4, 2024 were $2.101 billion, or 52.2% of total revenue, as compared to $2.202 billion, or 50.5% of total revenue, in the twenty-six week period of the prior year. The 170 basis point increase was primarily driven by (i) the impact of the change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher SG&A expenses as a percentage of revenue, (ii) the impact from the deleveraging of expenses resulting from the decline in revenue in the first half of 2024 and (iii) costs incurred in connection with the Growth Driver 5 Actions. These increases were partly offset by the favorable impact of (i) the 2022 costs savings initiative and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses.

Current wording

SG&A expenses in the thirty-nine weeks ended November 3, 2024 were $3.255 billion, or 51.8% of total revenue, compared to $3.326 billion, or 49.4% of total revenue, in the thirty-nine week period of the prior year. The 240 basis point increase was primarily driven by (i) the impact of the change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel, as our direct-to-consumer distribution channel was a larger proportion of total revenue and carries higher SG&A expenses as a percentage of revenue, (ii) the impact from the deleveraging of expenses resulting from the decline in revenue in the first nine months of 2024, (iii) costs incurred in the third quarter of 2024 in connection with the Mr. Hilfiger amendment and (iv) costs incurred in connection with the Growth Driver 5 Actions. These increases were partially offset by the favorable impact of (i) the 2022 costs savings initiative and (ii) cost efficiencies across the business as we take a disciplined approach to managing expenses.

Previous wording

We currently expect that SG&A expenses as a percentage of revenue for the full year 2024 will increase approximately 130 basis points as compared to 2023. Our expectation for 2024 includes an increase primarily as a result of(i) the above-mentioned change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2023, (ii) the impact from the deleveraging of expenses resulting from the expected decline in revenue in 2024 and (iii)costs incurred in connection with the Growth Driver 5 Actions. These increases are expected to be partially offset by (i) the favorable impact of the 2022 cost savings initiative, and (ii) cost efficiencies across the business as we continue to take a disciplined approach to managing expenses.

Current wording

We currently expect that SG&A expenses as a percentage of revenue for the fourth quarter of 2024 will be relatively flat compared to the fourth quarter of 2023. We currently expect that SG&A expenses as a percentage of revenue for the full year 2024 will increase approximately 170 basis point as compared to 2023. Our expectation for full year 2024 includes an increase primarily as a result of (i) the above-mentioned change in the revenue mix between our direct-to-consumer distribution channel and our wholesale distribution channel as compared to 2023, (ii) the impact from the deleveraging of expenses resulting from the expected decline in revenue in 2024, (iii) costs incurred in the third quarter of 2024 in connection with the Mr. Hilfiger amendment and (iv) costs incurred in connection with the Growth Driver 5 Actions. These increases are expected to be partially offset by (i) the favorable impact of the 2022 cost savings initiative and (ii) cost efficiencies across the business as we continue to take a disciplined approach to managing expenses.

Previous wording

Non-service related pension and postretirement income was $1 million in each of the twenty-six weeks ended August 4, 2024 and July 30, 2023.

Current wording

Non-service related pension and postretirement income was $1 million in each of the thirty-nine weeks ended November 3, 2024 and October 29, 2023.

Previous wording

The equity in net income of unconsolidated affiliates was $24 million in the twenty-six weeks ended August 4, 2024 as compared to $21 million in the twenty-six week period of the prior year. These amounts relate to our share of income (loss) from our unconsolidated affiliates as described in the thirteen weeks discussion above. Our investments in the joint ventures are being accounted for under the equity method of accounting.

Current wording

The equity in net income of unconsolidated affiliates was $35 million in each of the thirty-nine weeks ended November 3, 2024 and October 29, 2023. These amounts relate to our share of income (loss) from our unconsolidated affiliates as described in the thirteen weeks discussion above. Our investments in the joint ventures are being accounted for under the equity method of accounting.

Previous wording

We currently expect that our equity in net income of unconsolidated affiliates for the full year 2024 will be relatively flat as compared to 2023.

Current wording

We currently expect that our equity in net income of unconsolidated affiliates for the fourth quarter and the full year 2024 will be relatively flat as compared to fourth quarter and full year 2023.

Previous wording

Interest expense, net decreased to $37 million in the twenty-six weeks ended August 4, 2024 from $46 million in the twenty-six week period of the prior year, primarily due to (i) an increase in interest income as compared to the prior year period and (ii) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023.

Current wording

Interest expense, net decreased to $53 million in the thirty-nine weeks ended November 3, 2024 from $68 million in the thirty-nine week period of the prior year, primarily due to (i) an increase in interest income resulting from higher levels of invested cash and higher interest rates as compared to the prior year period and (ii) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023.

Previous wording

Interest expense, net for the full year 2024 is currently expected to be approximately $70 million compared to $88 million in 2023, primarily due to (i) an increase in interest income as compared to the prior year period and (ii) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023.

Current wording

Interest expense, net for the fourth quarter and full year 2024 are currently expected to be approximately $15 million and approximately $68 million, respectively, a decrease compared to $20 million and $88 million, respectively, in 2023, primarily due to (i) an increase in interest income resulting from higher levels of invested cash and higher interest rates as compared to the prior year period and (ii) the impact of the repayment of the $100 million 7 3/4% debentures in November 2023.

Previous wording

The effective income tax rate for the second quarter of 2024 was (2.1)% compared to 21.3% in the second quarter of the prior year. The decrease in the effective income tax rate was primarily due to a favorable change in our uncertain tax positions resulting in a benefit to our 2024 effective tax rate of 21.2% from the settlement of a multi-year audit in an international jurisdiction.

Current wording

The effective income tax rate for the thirty-nine weeks ended November 3, 2024 was 13.3% compared to 22.3% in the thirty-nine week period of the prior year. The decrease in the effective income tax rate was primarily due to (i) a favorable change in our uncertain tax positions resulting in a benefit to our effective tax rate of 6.5% from the settlement of a multi-year audit in an international jurisdiction in the second quarter of 2024 and (ii) a change in the mix of international and domestic earnings.

Previous wording

We currently expect that our effective income tax rate for the full year 2024 will be approximately 16%.

Current wording

We currently expect that our effective income tax rate for the fourth quarter and full year 2024 will be approximately 20% and 15%, respectively.

Previous wording

Cash and cash equivalents at August 4, 2024 was $610 million, a decrease of $98 million from $708 million at February 4, 2024. The change in cash and cash equivalents included the impact of (i) $227 million of completed common stock repurchases under the stock repurchase program, (ii) $553 million of net proceeds from the issuance of €525 million principal amount of 4 1/8% senior notes due 2029 and (iii) the $562 million redemption of €525 million principal amount of 3 5/8% senior notes due 2024. We ended the second quarter of 2024 with approximately $1.4 billion of borrowing capacity available under our various debt facilities. The seasonality of our business results in significant fluctuations in our cash balance between fiscal year end and subsequent interim periods due, in part, to the timing of inventory purchases and peak sales periods.

Current wording

Cash and cash equivalents at November 3, 2024 was $560 million, a decrease of $148 million from $708 million at February 4, 2024. The change in cash and cash equivalents included the impact of (i) $256 million of completed common stock repurchases under the stock repurchase program, (ii) $553 million of net proceeds from the issuance of €525 million principal amount of 4 1/8% senior notes due 2029 and (iii) the $562 million redemption of €525 million principal amount of 3 5/8% senior notes due 2024. We ended the third quarter of 2024 with approximately $1.4 billion of borrowing capacity available under our various debt facilities. The seasonality of our business results in significant fluctuations in our cash balance between fiscal year end and subsequent interim periods due, in part, to the timing of inventory purchases and peak sales periods.

Previous wording

Cash flow for the full year 2024 will be impacted by various factors, including, as discussed further below in this “Liquidity and Capital Resources” section, (i) mandatory long-term debt repayments on our term loan under our 2022 senior unsecured credit facilities of approximately $12 million, subject to exchange rate fluctuations, (ii) expected common stock repurchases under the stock repurchase program of approximately $400 million and (iii) expected capital expenditures of approximately $225 million.

Current wording

Cash flow for the full year 2024 will be impacted by various factors, including, as discussed further below in this “Liquidity and Capital Resources” section, (i) mandatory long-term debt repayments on our term loan under our 2022 senior unsecured credit facilities of approximately $12 million, subject to exchange rate fluctuations, (ii) expected common stock repurchases under our stock repurchase program of approximately $400 million and (iii) expected capital expenditures of approximately $200 million.

Previous wording

As of August 4, 2024, $411 million of cash and cash equivalents was held by international subsidiaries. Our intent is to reinvest indefinitely substantially all of our historical earnings in foreign subsidiaries outside of the United States in jurisdictions in which we would expect to incur material tax costs upon distribution of such amounts. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated due to the complexities associated with the hypothetical calculation.

Current wording

As of November 3, 2024, $227 million of cash and cash equivalents was held by international subsidiaries. Our intent is to reinvest indefinitely substantially all of our historical earnings in foreign subsidiaries outside of the United States in jurisdictions in which we would expect to incur material tax costs upon distribution of such amounts. It is not practicable to estimate the amount of tax that might be payable if these earnings were repatriated due to the complexities associated with the hypothetical calculation.

Previous wording

We received dividends of $36 million and $30 million from our investments in unconsolidated affiliates during the twenty-six weeks ended August 4, 2024 and July 30, 2023, respectively. These dividends are included in our net cash provided by operating activities in our Consolidated Statements of Cash Flows for the respective period.

Current wording

We received dividends of $42 million and $30 million from our investments in unconsolidated affiliates during the thirty-nine weeks ended November 3, 2024 and October 29, 2023, respectively. These dividends are included in our net cash provided by operating activities in our Consolidated Statements of Cash Flows for the respective period.

Previous wording

We completed the sale of our women’s intimates businesses conducted under the Warner’s, Olga and True&Co. trademarks to Basic Resources on November 27, 2023 for net proceeds of $156 million, which we received in the fourth quarter of 2023. Due to the accelerated realization of the earnout provided for in the agreement with Basic Resources that occurred during the first quarter of 2024, we are receiving additional proceeds of $10 million, which is being paid to us in installments through the first quarter of 2025. We received $2.5 million of the earnout during the second quarter of 2024. Please see Note 4, “Divestitures,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.

Current wording

We completed the sale of our women’s intimates businesses conducted under the Warner’s, Olga and True&Co. trademarks to Basic Resources on November 27, 2023 for net proceeds of $156 million, which we received in the fourth quarter of 2023. Due to the accelerated realization of the earnout provided for in the agreement with Basic Resources that occurred during the first quarter of 2024, we are receiving additional proceeds of $10 million, which is being paid to us in installments through the first quarter of 2025. We received $5 million of the earnout during the thirty-nine weeks ended November 3, 2024. Please see Note 4, “Divestitures,” in the Notes to Consolidated Financial Statements included in Item 8 of this report for further discussion.