Stefan Larsson
Chief Executive Officer and Director at PVH
Thank you, Sheryl, and good morning, everyone, and thank you for joining our call today.
For the third quarter, we drove strong performance led by the strength of our two globally iconic brands, Calvin Klein and Tommy Hilfiger, and our disciplined execution of brand-building growth plan, the PVH+ Plan. Despite an increasingly choppy macro backdrop, particularly in Europe, we grew overall revenue in line with guidance, up 4% on a reported basis and up 1% in constant currency, while expanding our gross margins, and we beat our guidance for the bottom line. We drove high-single-digit growth in our direct-to-consumer business with growth across both brands in all regions. This included double-digit growth in our owned and operated e-commerce, and mid-single-digit growth in our stores. Partially offsetting the strength in D2C trends, we experienced incrementally more challenging trends in wholesale brought by the tougher macroenvironment.
As a company, we are driving a much more profitable business. On a non-GAAP basis, in Q3, we grew EBIT by 13% versus last year with strong margin expansion. And in Q4, we project to grow EBIT by over 30% versus last year, with an approximate 12% EBIT margin. Looking ahead, we are reaffirming our EBIT margin, and we are increasing our EPS guidance by $0.10 for the full year on a non-GAAP basis. By focusing on what's within our control for the full year 2023, we remain well-positioned to drive meaningful margin expansion and double-digit EPS growth. We just came out of the important Thanksgiving and Black Friday week, one of the key consumer moments during the holiday period, and I'm pleased to share that in both North America and in Europe, we beat our growth plans versus last year and delivered a strong start of the holiday season.
We continue to make strong progress and gain increasing traction across all five growth drivers of the PVH+ Plan. And we relentlessly lean into the execution on winning with product, winning with consumer engagement, winning in the marketplace, as well as developing a data and demand-driven supply chain, and investing in growth while driving efficiencies. And as I mentioned on our last call, each of our growth drivers plays an important role, and it's when we play them all together that's something really powerful happens. And let me share some concrete examples on how we made that come to life this quarter.
First, our strong D2C growth was fueled by increased product and supply chain strength that drove higher gross margins. The sales growth was supported by a nearly 20% increase in marketing investments with strong cut-through campaigns and global talent amplification. From a regional perspective, we drove constant currency revenue growth for our combined Calvin and Tommy businesses for all regions. Our outperformance in the quarter was driven by North America, which is a very important proof point for how we are already positioning both Calvin and Tommy for long-term sustainable growth in the region through strong execution of the PVH+ Plan.
For the second consecutive quarter, our EBIT margin for our Calvin and Tommy businesses in North America together took a sizable step forward and expanded to 13.1% in the quarter, with significant gross margin expansion in both our direct-to-consumer and wholesale business. Inventory continues to be in great shape, both in composition and in levels, down 19% at the end of the quarter, as we made significant progress, increasing overall inventory productivity as part of our actions to lower inventory in relation to sales by 25% by the end of fiscal 2024, all while improving availability.
For the first half of 2024, we also see decreases in our AUC with more than 5%. This is partly driven by favorable macro, but even more importantly, it's driven by an improved approach to our costing process, the first results of a better raw material strategy, and early returns on a much sharper assortment productivity. We continue to invest in growth while driving cost efficiencies and are improving our cash flow, increasing share buybacks, showing our confidence in our ability to execute over the long-term. During the quarter, we further sharpened our focus on our two core brands with the divestiture of Heritage Brands. The proceeds from the transaction will be used to repurchase stock and we now expect to repurchase approximately $550 million of our stock, up from $400 million previously.
Finally, it will be the strength of our brands, our consistency in direction, and our relentless execution of the PVH+ Plan that will set us apart over time. And this will, in turn, be driven by the quality of the management team, which we have strengthened significantly over the past year. I'm happy to share the addition of Lea Rytz Goldman, who will join us as Global Brand President of Tommy Hilfiger in spring 2024. Lea is a uniquely strong and experienced brand and business builder with an outstanding track record building brands globally. Under Lea's leadership, the Tommy Hilfiger brand will operate in the same way our global Calvin Klein business operates today under Eva Serrano, creating a consistent and unified global brand structure. Each of our two brands now has one leader who sets the vision, leads product creation, brand marketing, and consumer experience globally, working closely with our regional teams who inform those strategies and lead the brand to win in the marketplace.
Now let me share a bit more of what drove our performance in the quarter, both from a global brand and regional perspective. Starting with Calvin Klein. Throughout the third quarter, Calvin continued to focus on driving very strong consumer engagement globally through our most important hero products and driving a strong category offense with growth across our refined, performance, and underwear categories. It was another quarter where we delivered cut-through campaigns globally and continue to amplify our talent partnerships. When we last spoke, the brand had just launched its fall campaign, which included our long-term ambassadors, Jennie Kim, Jung Kook, Kendall Jenner, wearing our most essential underwear, denim, and refined womenswear styles. We cut through with nearly four million average video views on TikTok and over 20% engagement rate on Instagram.
As part of the fall campaign, the brand also launched a surprise performance with Jung Kook in Times Square New York. The concert was announced only 30 minutes beforehand, and tens of thousands of fans gathered within minutes. Jung Kook and his whole crew were dressed in iconic Calvin Klein, and their looks were immediately shoppable on our site. It was a perfect example on how we amplify global talent to win with consumer engagement. For holiday, the brand campaign features Hailey Bieber in iconic Calvin Klein styles, where our hero products are prominently featured on social through shoppable content to drive commercial impact.
Finally, I'm excited about the progress we are making to align Calvin Klein to one global brand vision. Since joining, Eva has been focused on tapping into Calvin's core DNA to make the brand more current than ever. As part of this work, we are expanding the capabilities of our global product teams here in New York, to drive a more unified product vision across key categories to win serving all markets.
Let me now share a few examples from Tommy Hilfiger. This fall, the Tommy brand reinforced its core DNA. Going back to classic American cool and iconic Tommy lifestyle through our family-focused seasonal campaign. As part of this campaign with a special focus on Asia, we celebrated the K-pop band, Stray Kids, VMA win, with a warm welcome to the Tommy family, breaking our record of social media engagement in the first 30 minutes. When we connect the brand in authentic ways with global talent like this, our fans respond, and we expand our reach and influence.
We combined another culturally relevant moment with aspirational talent when Tommy campaign star SZA, hosted a New York Fashion Week brunch with over 100 VIP guests and influencers, generating over 800 million impressions on social. And just two weeks ago, at the Las Vegas Formula One Grand Prix, we expanded our partnership with Formula One by welcoming one of Hollywood's biggest rising stars, Damson Idris, to the Tommy Hilfiger brand family as our newest men's ambassador. Together with Damson, Tommy hosted a number of events with key influencers featuring day and night Tommy looks. For the holiday, our Tommy campaign celebrates the happiness of returning home, families and friends are captured in Tommy's classic American prep with a twist as they unite to celebrate the season, all amplified by very strong talent.
Now let me turn to our regional performance. I'd like to start with North America, which is a big proof point for us this quarter. As I mentioned earlier, we made significant progress building the foundation for sustainable, increasingly profitable brand accretive growth for the region, and I'm very encouraged by the major initial traction we're gaining. Our Tommy and Calvin businesses together delivered high-quality, low-single-digit revenue growth, and most importantly, a 13.1% EBIT margin in the quarter, including higher gross margins and higher AURs. We drove outperformance for both our direct-to-consumer businesses and our wholesale business, which showed meaningful sequential improvement, and this is with still a big part of the pre-pandemic tourism not yet back.
Let me share a few highlights. For Tommy, our D2C growth continues to be driven by our best premium style essentials, which increased by over 50% compared to last year, supported by elevated in-store execution. For Calvin, leading with our category offense, we delivered our third consecutive quarter of double-digit growth in the refined category, the expanded essentials focus was also once again the standout, supported by an integrated marketing campaign and elevated execution on ck.com. Across both brands, we drove another quarter of double-digit growth in our owned and operated e-commerce businesses. This was driven by the elevation of our brands through stronger storytelling, improved site merchandising, and new conversion tools.
Within wholesale, while our partners remain conservative, we continue to see strong gains resulting from our efforts to build a much stronger business with our key partners, such as Macy's. Let me share some examples. We drove double-digit year-over-year growth in Tommy test stores, where we have invested together with Macy's in stronger field team coverage. And we are driving double-digit AUR growth at Macy's through the ongoing success with our improved product assortment, including our polo offense and seasonal categories. For Calvin, our men's essentials business increased over 50% at Macy's with investments in the right premium essential-based assortment. We also saw strength in refined categories, which grew 25%. I'm very proud of our North American team's execution this past quarter, and we now have the team, the plan, and the disciplined execution in place to unlock our full potential in the region.
Turning to Europe. We continue to drive growth this quarter, building on our historically large business, market-leading awareness, and overall brand strength in the region. In the third quarter, we delivered high-single-digit revenue growth on a reported basis and low-single-digit growth in euros against a record-breaking quarter last year. Our revenue exceeded EUR1 billion, led by mid-single-digit growth in D2C for each brand. In wholesale, we confirmed our pre-spring Spring '24 order book at low-single-digit growth on a constant currency basis with pre-spring already shipping in Q3, leading to timing differences versus Q4 last year.
Like others, we have seen a more challenging macroeconomic backdrop in Europe, and that is impacting consumer confidence and the wholesale channel. Additionally, this quarter, just as we were about to kick off the fall season, we saw the longest streak of record-setting warm weather in Europe since the 1800s. Both factors have driven an increasingly promotional environment in the marketplace. And for us, the heat wave in September was a double whammy, given our historical strength in outerwear, sweaters, and heavyweight knits. Weather aside, going forward, we anticipate this challenging macro backdrop and an increasingly cautious wholesale channel to continue into 2024.
In this environment, we are not sitting still. We are leveraging our market-leading strength and driving much increased profitability and proactively adjusting how we operate. We're taking our PVH+ Plan execution to the next level, and we are doing this in two main ways. First, against the current macro backdrop in the wholesale channel, we feel that it's critically important to avoid having too much inventory in the market, even if that means less selling in, to secure strong sellout with high margin and less discounting. Our main priority, independently of macro, for both brands will always be to strengthen our position for long-term sustainable brand accretive growth. Second, we will lean in to the next level of PVH+ execution through D2C and with our key wholesale partners, leveraging our key strengths in product, consumer engagement, and marketplace management.
I'll highlight a few examples of how you will see this in action. Across both brands, we have product innovation coming for 2024. In technical fabrics, dress casual, more choice of our best premium essentials, more transitional products to become less weather-dependent and all while we continue to cut the unproductive assortment tail. In consumer engagement, we just shot very strong cut-through campaigns for both Tommy and Calvin that we launch for Spring 2024. And in the marketplace, you will see us continue to invest in our stores, shop-in-shops, and digital experiences to keep elevating the consumer experience.
You can already see the positive effects of our next level PVH+ execution in our D2C channels, where we have more control between product and consumer and can execute with impact more quickly. And in wholesale, thanks to the much-improved inventory management this season, despite the tougher conditions, you will already in Q4 be able to see a significantly improved profitability versus the same quarter last year. I have personally spent more time in Europe over the past few months. I visited over 50 stores in six countries to work with our teams as we adjust to market conditions and put the next level of PVH+ execution into action. Standing out the most from this work is the foundational strength we have in both brands with consumers across the region and the opportunity to continue leveraging this as we navigate the current environment.
Moving on to Asia Pacific. We continue to drive strong performance, which included double-digit constant currency growth in our direct-to-consumer businesses across the region, including China. We continue to win in key consumer moments, such as Chinese Valentine's Day and Tmall Membership Day, fueled by strong hero products and successful capsule launches. And both Calvin and Tommy continue to move up the rankings on Tmall.
Most recently, we delivered double-digit growth in GMV during China's important 11/11 activation. Leading with a product category offense, we focused on growing live stream sales and leveraging talent in innovative and engaging ways. We also captured market share on Douyin as consumers increase spending on these newer formats of shopping. We leveraged our global mega talent to expand brand awareness in the region. In October, Calvin celebrated Fall 2023 collection in Tokyo, featuring brand ambassador Jung Kook. The event drove strong brand awareness across the region and globally. And Tommy's fall campaign reached a total fan base of over 130 million with regionally relevant ambassadors, including K-pop group, Stray Kids, in addition to new ambassadors, Liu Yuxin [Phonetic] and Greg Hsu, who drove over 430 million impressions in China alone during the campaign period.
Overall, we are doing a great job executing the PVH+ Plan in the region, and we are very optimistic of the long-term growth opportunity for both of our brands. In closing, I feel very good about the strong performance we delivered in the quarter and how we keep gaining traction through our brand-building PVH+ execution. Before I turn the call over to Zac, I would like to thank all of our associates around the world for their hard work and important contributions this year, and I wish everyone a happy and healthy holiday season.
