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Date
Wednesday, Aug. 27, 2025 at 9 a.m. ET
Call participants
Chief Executive Officer — Stefan Larsson
Chief Financial Officer — Zac Coughlin
Senior Vice President, Investor Relations — Sheryl Freeman
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Risks
CFO Zac Coughlin said, "We expect the tariffs currently in place will have an overall net negative impact on our earnings in 2025, including an approximately $70 million unmitigated impact to EBIT, or approximately $1.15 per share, compared to previous guidance of $65 million and $1.05 per share."
Coughlin reported, "In the second quarter, our gross margin was 57.7%, a decrease of 240 basis points compared to last year," citing higher promotions, wholesale mix, and Calvin Klein shipment delays as factors.
Takeaways
Revenue-- Increased 4% as reported and 1% in constant currency, with Tommy Hilfiger up 4% and Calvin Klein up 5% for the fiscal second quarter ended Aug. 3, 2025 (non-GAAP).
Americas performance-- Region delivered 11% revenue growth, double-digit wholesale gains, and double-digit EBIT margins (non-GAAP).
EMEA performance-- Reported revenue in EMEA was up 3%, but down 3% in constant currency (non-GAAP); direct-to-consumer business grew slightly, with retail stores up mid-single digits, while wholesale declined mid-single digits.
APAC performance-- Revenue (non-GAAP) in Asia Pacific declined 3% in constant currency and 1% as reported, with sequential improvement versus the fiscal first quarter and digital commerce outpacing declines in stores and wholesale.
Gross margin-- Fell 240 basis points to 57.7% (non-GAAP), primarily from higher promotions, shipment mix, Calvin Klein shipment delays, the early effect of tariffs (20 basis points), and North America license transitions (50 basis points).
SG&A discipline-- SG&A as a percent of revenue (non-GAAP) improved 140 basis points to 49.5%, with spending down in constant currency, reflecting cost discipline and the effect of growth driver five actions.
Inventory-- Increased 13% versus prior year, including a 1% tariff effect; rise mainly reflects planned investment in best-selling categories and to support projected fiscal third quarter sales (non-GAAP).
EPS-- Delivered non-GAAP earnings per share of $2.52, with a negative impact of $0.06 from tariffs and a $0.16 benefit from exchange rates.
Outlook: Full-year guidance-- Reaffirmed constant currency revenue guidance (flat to slightly up), operating margin near 8.5%, and EPS between $10.75 and $11 (all non-GAAP, fiscal 2025), despite incremental tariff headwinds.
Tariffs impact-- Management embedded a $70 million unmitigated EBIT headwind ($1.15 per share) into non-GAAP fiscal 2025 guidance and expects to fully mitigate these impacts over time.
Marketing investment-- Stepped-up investment in the second half of fiscal 2025 to amplify brand campaigns through high-impact activations and global talent, with the expectation of sacrificing some SG&A leverage in the fiscal third quarter (non-GAAP).
Calvin Klein segment-- Global men's cotton stretch underwear sales rose 14% and fashion denim grew 19% in the quarter; women's underwear programs are targeted for further innovation and global campaigns.
Store openings-- New Calvin Klein flagship in Harajuku, Tokyo opened, with a Soho, New York flagship to follow, alongside a planned multi-year renovation program across the global store fleet.
Total wholesale revenue-- Increased 6% as reported and 2% in constant currency (non-GAAP), benefitting from Calvin Klein women's wholesale business transition in-house.
Digital commerce-- Achieved double-digit growth in Americas digital commerce; direct-to-consumer was flat in constant currency but improved sequentially versus the fiscal first quarter.
Summary
PVH(PVH -0.96%) delivered double-digit revenue growth and double-digit EBIT margins in the Americas, alongside flat direct-to-consumer trends globally, driven by product innovation and heightened marketing initiatives, based on non-GAAP results for the fiscal second quarter ended Aug. 3, 2025. Management reiterated full-year non-GAAP guidance for revenue, margin, and EPS for fiscal 2025, despite absorbing an increased $70 million EBIT headwind from higher U.S. tariffs, underlining near-term reliance on international diversity and ongoing cost mitigation strategies. Segment-level performance included a 14% global increase in men's cotton stretch underwear sales for Calvin Klein, a 19% gain in fashion denim, and a 10% global rise in Tommy Hilfiger women's wear, each supported by high-profile collaborations and targeted campaigns.
CFO Zac Coughlin said, "Our gross margin guidance for the fiscal third quarter (non-GAAP) includes an unmitigated tariff impact of approximately 80 basis points, partially offset by planned mitigation actions."
Store inventory position is described as "fresh and current," and remains aligned with year-end sales targets excluding tariffs, as discussed for the fiscal second quarter on a non-GAAP basis.
Forward-looking wholesale order books in Europe for fall 2025 and spring 2026 are up low single digits (non-GAAP), with management emphasizing a "second consecutive season of growth."
Operational progress was cited in resolving Calvin Klein product shipment delays and securing targeted go-in margin improvements for spring 2026 deliveries (non-GAAP).
Management expects to realize nearly 200 basis points of that benefit in the fourth quarter from the actions completed to date.
Industry glossary
GMV: Gross merchandise value, total sales value transacted through a platform, commonly referenced for digital commerce performance in Asia Pacific.
Cut-through marketing: High-impact brand campaigns that use notable global talent and cultural moments to generate strong consumer engagement and visibility.
Growth driver five actions: PVH's strategic cost-saving initiative intended to simplify operations, drive SG&A efficiencies, and support operating margin expansion.
Full funnel: Integrated marketing approach spanning the awareness, consideration, and conversion stages to drive brand and product engagement.
Full Conference Call Transcript
Sheryl Freeman: Thank you, operator. Good morning, everyone, and welcome to the PVH Corp. Second Quarter 2025 Earnings Conference Call. Leading the call today will be Stefan Larsson, Chief Executive Officer, and Zac Coughlin, Chief Financial Officer. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast, or otherwise transmitted without PVH's written permission. Your participation constitutes your consent to having anything you say appear on any transcript or replay of this call. The information to be discussed includes forward-looking statements that reflect PVH's view as of August 26, 2025, of future events and financial performance.
These statements are subject to risks and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release, which is the subject of this call. These include PVH's right to change its strategies, objectives, expectations, intentions, and the company's ability to realize anticipated benefits and savings from divestitures, restructurings, and similar plans such as the actions undertaken to focus principally on its Calvin Klein and Tommy Hilfiger businesses and its current multiyear initiative to simplify its operating model and achieve cost savings. PVH does not undertake any obligation to update publicly any forward-looking statement, including without limitation, any estimates regarding revenue or earnings.
Generally, the financial information and projections to be discussed will be on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's Second Quarter 2025 earnings release, which can be found on www.pvh.com and in the company's current report on Form 8-Ks furnished to the SEC in connection with the release. At this time, I am pleased to turn the conference over to Stefan Larsson.
Stefan Larsson: Thank you, Sheryl, and good morning, everyone. And thank you for joining our call today. I want to start by thanking our teams around the world for delivering a better-than-expected second quarter. We beat our guidance on both the top and bottom line, as we grew revenue 4% on a reported basis, achieved our 1% revenue growth guidance on a constant currency basis, and drove better-than-expected gross margin performance and EBIT margins. Total direct-to-consumer revenue was flat in constant currency, a sequential improvement compared to the first quarter, including a sequential improvement each month throughout the quarter.
We grew wholesale revenue by low single digits in constant currency, benefiting from the intake and relaunch of the Calvin Klein women's business in North America. Looking ahead, we are reaffirming our earnings guidance for the full year and raising our reported revenue guidance despite tariff rates effectively doubling and a continued uneven global macro. And for the rest of the year, we have also increased our strategic investments in marketing to generate even higher visibility and customer impact. Since we last spoke, our focus has been to further strengthen our PVH plus execution. And for both brands, this means continuing to strengthen our brand-building consumer flywheel.
Across product, marketing, and marketplace execution, we drive performance by leaning into the strong consumer love for our iconic brands, focusing on our biggest product categories, then bringing innovation and newness into our most iconic product franchises, amplifying them through powerful cut-through marketing, and supporting it by next-level execution across all our channels. And we have already made significant progress. Regionally in Europe, we delivered another quarter of positive D2C growth and finalized our Spring 2026 forward-looking wholesale order books up low single digits, marking our second consecutive season of growth. In North America, we drove stronger D2C performance and again drove double-digit EBIT margins.
And in APAC, we exceeded our plan and we started to stabilize the business in key markets. We are also successfully working through the transitory operational challenges we experienced as we set up the Calvin Klein global product capability in New York. Already now for Fall 2025, we are delivering the sequential improvements we set out to achieve. And for the Spring 2026 product season, we have already locked in the important going margin improvements we target, as well as got them back to on time for our deliveries. David and the Calvin team have done a great job making this happen.
Let me now share concrete examples of the actions we took that drove our performance in the second quarter. And let me start with Calvin Klein. The biggest and most iconic product categories in Calvin Klein are underwear and denim. And this quarter, we further drove powerful growth in both these categories. When we last spoke, we had just launched our spring campaign with superstar Bad Bunny to amplify the newness and innovation in our new men's ICON Cotton Stretch hero product franchise. It's been incredibly successful. And across all regions, this franchise is driving significant commercial impact.
The combination of a powerful product category offense, tied to strong product innovation, connected to a cut-through campaign with globally relevant talent, is a repeatable model that we know works. The Bad Bunny campaign has increased brand awareness, driving stronger traffic and conversion. It's also creating a strong halo effect across men's underwear. Sales of our cotton stretch styles were up 14% globally in the quarter, following the 25% growth we delivered last quarter. Building on this success, for this fall, we are bringing that same next-level product innovation and newness to our largest and most successful women's underwear program with the launch of our Icon cotton modal franchise.
It will also be supported by a global campaign featuring one of the most exciting global superstars in music. We will again drive commercial impact by activating a full funnel approach across all regions. Next, in denim, we have continued to build on Calvin's strong spring momentum. We focused on newness through 90s styles and fashion fits to capture consumer demand for looser fit silhouettes and delivered 19% growth in fashion denim this quarter. We're also innovating with new tools to drive conversion. And we recently introduced a new lookbook style denim fit guide to make it even easier for consumers to shop their favorite denim look with styling inspiration that captures the iconic Calvin lifestyle.
Last week, leveraging our proven combination of hero product amplified by mega talent, we launched the denim-focused collection featuring K-Pop Mega Star Menu. Already, we have seen more than doubling of our engagement rate on social media from this campaign with the key denim products featured rising to the number one and two best-selling products in their categories and markets. This is just the beginning of what we believe will be the strongest Calvin Klein fall campaign so far. With a combination of strong product innovation, amplified with a lineup of global mega talent from the world of music and sports, we build relevance and desirability when we connect Calvin's brand DNA to the global cultural conversation.
And this quarter, we have repeatedly done that. We connected the inspirational halo of our Calvin Klein collection to key cultural moments with talent including Dua Lipa, Pedro Pascal, and Aesop Rocky. And we took this to another level when Beyonce wore custom Calvin Klein Collection underwear in her Cowboy Carter show, a moment she shared with her over 300 million followers on Instagram. We are building strong connectivity between collection and our main line to extend the halo that Veronica Leone is creating. You will see this next at our upcoming runway show at New York Fashion Week on September 12.
Finally, in the marketplace, we are making key investments in stores around the world to bring the full Calvin vision to life for the consumer. Tomorrow, we'll open our newest flagship store in Tokyo, in the center of Harajuku, a hub for youth culture, fashion, and high traffic from both local and international shoppers. The new flagship marks the next chapter in our global retail expansion, in major markets around the world. And later this year, we look forward to opening our next flagship in the heart of Soho, New York, one of the most iconic retail destinations globally. Turning to Tommy.
Throughout the quarter, we continued to take Tommy's iconic DNA of classic American style with Tommy's unique twist and connecting it to culture and driving strong commercial impact. In the world of sport, Tommy was twenty years ahead of his time in building early partnerships with Formula One. Our latest partnership with Apple Studios took this to the next level with Tommy the brand playing a key part in the global summer blockbuster film, Ep one, the movie. It's already become the highest-grossing sports film in history. And it's also Brad Pitt's highest-grossing film to date. And for those who have seen it, you know that Tommy is impossible to miss.
To support this major brand moment, we launched a full funnel global campaign. The movie premiered at the landmark Radio City Music Hall in New York City. And it was incredible to see the iconic Tommy Hilfiger brand on the big screen, embodying the fearless drive and effortless style that define both the sport and the brand. This continued in London, where Tommy was featured on the 3D screen in Piccadilly Circus ahead of the global premiere, contributing to double-digit lifts in both brand perception and net promoter scores in that market. Globally, we have seen an incredible consumer response to our limited edition A Pax GP collection of key Formula One styles, with strong sell-through around the world.
We'll continue building on this momentum with Cadillac, as the official apparel sponsor of the Cadillac Formula One racing team, where two of the biggest American icons are coming together to support the first US team on the grid. And staying in the world of sport, as the official lifestyle partner of the US sale GP team, Tommy recently launched a capsule collection which blends high-performance sport and modern style. The partnership is at the heart of Tommy's unique DNA and opens up a new consumer and commercial opportunity for the brand around the world. Throughout the quarter, we executed across the full funnel.
This included celebrating the Tommy summer lifestyle through the Hill Figure Resort campaign where our iconic hero product and strong category offense was amplified with top-tier talent including Madeline Klein and Patrick Schwarzenegger. This led to strong sell-throughs across channels for spring and summer 2025 seasons in featured key product categories. Within our summer shop styles, we drove women's wear up 10% globally and men's wear up 3%. We continue to focus on the full Tommy lifestyle by expanding both our core men's and women's business. In men's, we recently expanded into dress casual, an important category in the consumer's wardrobe.
We previewed the collection in Milan to more than 350 wholesale partners at PT Ormo, one of the biggest men's fashion events in the world. And we are encouraged by the strong initial selling for spring 2026. Category expansion is an important strength of the Tommy brand. And we are excited for this new category to launch early next year with key wholesale partners globally as well as in premium stores and on tommy.com. In women's, building on the recent collaboration with Sofia Richie Grange, this quarter we launched the TOMMY GIRL capsule, which drove strong sell-through across regions and attracted a younger consumer.
Tommy Girl has been an important feature in pop culture since the nineties, and we are tapping into that deep consumer love for the Tommy DNA. In North America, over half of our capsule purchases were new consumers to the site, and one-third became repeat purchases within thirty days. Looking to the fall season, yesterday, we launched a global lifestyle campaign featuring a cast led by supermodel Claudia Schiffer and Nicholas Hoult, the star of the summer hit film Superman. To maximize amplification, we have increased our marketing investments, which includes a global activation of the full funnel, with multiple high-impact brand moments and sustained product storytelling.
Now let me turn to our regional performance where we also continue to make strong progress. Starting with Europe, we drove another quarter of total D2C growth, and we delivered our fourth consecutive quarter of store revenue growth. D2C growth was offset by a decline in wholesale, from shipment timing that we mentioned last quarter which benefited the first quarter. While overall revenue was down low single digits in constant currency for the quarter, importantly, we ended the first half with revenue up slightly versus last year. I'm also pleased to share that we drove growth in our wholesale order book for spring 2026, up low single digits compared to the prior year, building on our growth in fall 2025.
This performance reflects our ability to further strengthen our product offering season by season, combined with our strong sales teams and wholesale partnerships in the region. Importantly, across the region, our stepped-up execution and product improvements drove growth in our largest category businesses in the quarter. In Tommy, we grew menswear up 3% versus last year, and in Calvin, we grew underwear up 6% versus last year. Turning to The Americas. We grew revenue by low double digits, including above-planned B2C performance across both brands. Our disciplined execution again drove double-digit EBIT margins.
We delivered strong growth in our digital channels, supported by a double-digit increase in traffic, fueled by our product strength and cut-through campaigns, and driven by our investments that continue to further elevate the online shopping experience. This quarter, both brands had positive consumer growth across new, retained, and reactivated consumers across our digital platforms. The consumer is choosing iconic products with newness and is showing up in our performance with strong trend improvement across both brands and across our D2C channels as we deliver products that are iconic to our brands with the innovation and relevant newness. We also saw higher sell-throughs of newness with our key wholesale partners.
While there is still uncertainty in the back half of the year tied to tariffs, we are focused on continuing to deliver iconic fashion with newness to our consumers. Moving on to Asia Pacific. For the second quarter, we drove better-than-expected top-line performance, with revenues declining low single digits in constant currency, representing a significant sequential improvement. This was driven by performance in our own channels, high-quality consumer engagement across the full funnel, and strong execution of key holidays. We again won in the big consumer moments such as six eighteen, where we delivered high single-digit GMV growth outperforming our expectations adding to our double-digit GMV growth last year.
During six eighteen, both Calvin and Tommy ranked among the top five international brands on Tmall. The macro remains choppy, through our strong execution, we have started to stabilize performance. This summer, I visited our teams in Japan and Korea and it was incredible to see the brand love we have in these markets. Whether it's Calvin's presence at Hyundai sales Gen C store, or the strength of Tommy's flagship store in Tokyo. Each quarter, we continue to build out the strength of our brands leveraging the combination of our category offense and iconic hero product, amplified with locally relevant talent. We still have significant untapped opportunity to grow our brands in APAC.
And also here, we are increasing our investments in marketing, to activate the full funnel and drive new store expansion. Reflecting our long-term commitment to the region which remains an important growth driver for our global business. Now turning to global licensing. Our licensing revenue, excluding the licenses that we are transitioning, continues to grow. As we have shared before, our large and diversified global licensing business is a key competitive advantage. Our licensing partners help bring our vision to life across multiple complementary categories. And are critically important to how we drive sustainable, profitable growth through the PVH plus plan.
In collaboration with our licensing partner, Cody, we are deep into preparations for our biggest fragrance launch since CK one. While we are preparing for the big launch next year, we have already had early success in recent new product launches especially with younger Gen C consumers. In closing, the second quarter marked another step forward on our multiyear journey to unlock the full potential of Calvin Klein and Tommy Hilfiger, and step by step building them into the most desirable lifestyle brands in the world. In a choppy macro environment, we delivered by intensifying and expanding the impact of our PVH plus execution. And we are making significant progress.
We continue to demonstrate that where we lean in to execute, we deliver. And I'm proud of how the team stepped up execution again this quarter to drive the business forward. The areas we said we were going to lean into last quarter delivered on. While the global macro landscape continues to evolve and remain uncertain, we are focused on what's within our own hands. Is building our brands and business for the long term. We continue to take concrete action to build on the momentum we created in the first half, to drive our performance in the back half. Continuously learning and improving to become stronger and stronger over time.
And with that, I'll turn the call over to Zac.
Zac Coughlin: Thanks, Stefan, and good morning. My comments are based on non-GAAP results and are reconciled in our press release. As Stefan discussed, this quarter we took another step forward on our multiyear journey to build Calvin Klein and Tommy Hilfiger into the most desirable lifestyle brands in the world, delivering or exceeding expectations across all key financial metrics for the second quarter. In Q2, we delivered another quarter of revenue growth. We drove a sequential improvement in year-over-year gross margin percent and continued our strong SG&A discipline. And while our EPS for the quarter was lower than last year, it was better than expected.
As we look forward, we are reaffirming our full-year guidance for constant currency revenue, operating margin, and EPS in spite of new tariff rates, which have effectively doubled since our last call. I will now discuss our second quarter results in more detail and then move on to our outlook. Revenue for the second quarter was up 4% on a reported basis, and up 1% on a constant currency basis. Starting from a regional perspective, our EMEA business was up 3% on a reported basis, and down 3% in constant currency for the quarter. In constant currency, we delivered growth in the direct-to-consumer business, which was up slightly, and notably, sales in our retail stores were up mid-single digits.
The fourth consecutive quarter of year-over-year growth. Our wholesale business was lower by mid-single digits reflecting the timing shift to Q1 of this year, that I discussed last quarter. And looking at the first half overall for EMEA, which normalizes for the wholesale timing effect, our total EMEA business was up slightly in constant currency driven by growth in the direct-to-consumer business, and wholesale revenue in line with the prior year. In our Americas business, revenue was up 11% driven by double-digit growth in wholesale, which includes the impact of Calvin Klein women's sportswear and jeans wholesale transition in-house.
As I discussed last quarter, the wholesale shipments this year were planned to reflect a more balanced first half-second half weighting versus last year when shipments were more heavily weighted to the back half. Direct-to-consumer revenue in The Americas was flat, a sequential improvement versus Q1. We delivered double-digit growth in our digital commerce business, which marks the fourth consecutive quarter of year-over-year growth, fueled by the investments we've made to elevate the online consumer experience. And while stores were down low single digits for the quarter, we delivered a sequential improvement compared to Q1 exited the quarter with modest sales growth in July.
Revenue in our Asia Pacific business was down 3% on a currency basis, a significant sequential improvement compared to the first quarter. Growth in our owned and operated digital commerce business was more than offset by declines in the wholesale business and in our stores, reflecting the choppy consumer environment in the region particularly in China. And while direct-to-consumer revenue in China was down compared to last year, we saw a sequential improvement in our bricks and mortar stores compared to the first quarter and drove growth in our digital commerce business. Revenue for Asia Pacific business was down 1% on a reported basis.
In our licensing business, revenue was down 3% versus last year, more than explained by the previously mentioned transition of Calvin Klein women's sportswear and jeans in-house. Turning to our global brands, Tommy Hilfiger revenues were up 4% as reported and flat in constant currency, Calvin Klein revenues were up 5% as reported and up 3% in constant currency. From an overall PVH channel perspective, our direct-to-consumer revenue was up 4% as reported and flat in constant currency. A sequential improvement over the prior quarter. Sales in our retail stores were up 4% as reported and flat on a constant currency basis, driven by mid-single-digit growth in EMEA, offset by low single-digit declines in each of Americas and APAC.
Sales in our owned and operated e-commerce business were up 3% as reported and flat in constant currency, as strong growth in Americas and APAC was offset by a decline in EMEA. Total wholesale revenue was up 6% as reported and 2% in constant currency, which reflects the previously mentioned transition of Calvin Klein women's sportswear and jeans in-house. In the second quarter, our gross margin was 57.7%, a decrease of 240 basis points compared to last year, but better than planned, largely due to a delayed impact of tariffs.
As we have discussed previously, approximately 50 basis points of the decrease was the impact of our North America license transitions, and in Q2, gross margin reflected the initial early impact of tariffs of approximately 20 basis points. The remaining 170 basis point decrease was largely a continuation of the three main factors we felt in Q1, including higher promotions, the mix of shipments and wholesale, has a negative impact on gross margin, but not our overall profitability, and the impact of Calvin Klein product shipment delays.
SG&A spending was down in constant currency and SG&A as a percent of revenue improved 140 basis points versus last year, to 49.5%, reflecting our strong cost discipline and our growth driver five actions. EBIT for the quarter was $178 million and operating margin was 8.2%. Earnings per share was $2.52 reflecting a negative impact of 6¢ related to tariffs, and a positive impact of 16¢ related to exchange. Interest expense was $22 million and our tax rate for the quarter was approximately 22%.
As a reminder, our earnings per share of $3.01 in the second quarter last year included a benefit of approximately $0.55 related to the favorable settlement of a multiyear international tax audit, which drove our tax rate to 0% for last year's quarter. Absent this benefit, Q2 2024 EPS would have been $2.46. Inventory at quarter-end was up 13% compared to Q2 last year, including a 1% increase due to tariffs, and reflects a planned improvement compared to up 19% in Q1. The rest of the increase in the current quarter was primarily due to a purposeful investment in best-selling core product categories, and an increase to support our projected sales in the third quarter.
Availability also improved across all regions and channels, as we make strategic investments in the most essential styles. Our inventory is fresh and current, and we remain on track to land the year with inventory aligned to our sales plan, excluding tariffs. And now moving on to our outlook. We are encouraged by our Q2 results, which we also recognize there continues to be significant uncertainty around global trade policy and the impact on the broader macroeconomic environment and consumer spending behavior. Our outlook is based on our best assessment of current conditions and currently announced tariff levels.
Starting with the third quarter, we are projecting revenue to be flat to a slight increase on a reported basis and down slightly on a constant currency basis compared to the prior year. Our revenue outlook for the third quarter reflects the impact of wholesale shipment timing in The Americas I spoke of earlier with this year reflecting a more balanced first half, second half weighting versus last year when shipments were more heavily weighted to the back half. Overall for The Americas, we are planning revenue up low single digits with growth in wholesale and DTC sales approximately flat. In EMEA, we expect continued growth in DTC and wholesale approximately flat.
And in Asia Pacific, expect revenue to decline by low single digits in line with the second quarter. We are expecting third quarter gross margin to decline approximately 175 basis points versus the prior year, a sequential improvement compared to the first half trend as we begin to stabilize the Calvin Klein operational challenges we have discussed previously. Our gross margin guidance includes an unmitigated tariff impact of approximately 80 basis points, partially offset by the impact of planned mitigation actions. The impact of tariffs, we felt much more heavily in the fourth quarter given when new rates take effect and the timing of sell-through.
We expect SG&A as a percentage of revenue to be up approximately 75 basis points compared to last year. As Stefan mentioned, we are investing more into marketing in the third quarter to capitalize on key consumer moments, and to support our brand-building cut-through campaigns amplified by mega talent. And at the same time, our growth driver five actions will continue to deliver efficiencies. Overall, we are projecting third quarter operating margin to be approximately 8% down approximately 250 basis points compared to last year. Earnings per share is expected to be in a range of $2.35 to $2.50.
Our tax rate for the third quarter is estimated at approximately 25%, higher than our tax rate projection for the full year due to timing items, and interest expense is projected to be approximately $22 million. And now moving on to the full year. We remain on track to deliver the overall business outlook we shared last quarter, despite the recently announced incremental tariffs on goods coming into The US. We are reaffirming our full-year constant currency revenue guidance of flat to increase slightly, our operating margin outlook of approximately 8.5%, and our EPS outlook in the range of $10.75 to $11.
Our guidance reflects an incremental tariff impact compared to our prior outlook and increased marketing investments, which are being offset by the impact of favorable exchange. We expect the tariffs currently in place will have an overall net negative impact on our earnings in 2025, including an approximately $70 million unmitigated impact to EBIT, or approximately $1.15 per share, compared to previous guidance of $65 million and $1.05 per share. We expect to mitigate some of these costs through strategic actions in the second half of the year and fully mitigate the impact over time, but for this year, some we will need to absorb. The net impact of the tariffs and these mitigation actions are embedded within our guidance.
We are confident that we are well-positioned to navigate the fluid tariff situation. We have a strong, globally diversified revenue base, with 70% of our revenues coming from outside The US. We work closely with an established network of global sourcing partners across more than 30 countries, and we continue to leverage our deep long-standing relationships to further optimize our sourcing and production costs. We are evaluating and actioning a variety of steps looking at every point along our value chain to mitigate the impact over time.
On the top line, while we are reaffirming our constant currency revenue guidance, we are now projecting reported revenue to increase slightly to low single digits reflecting the favorable impact of exchange compared to our previous guidance of flat to a slight increase. Regionally, our revenue outlook remains unchanged. Europe is planned to return to growth, in The Americas, we are planning revenue up mid-single digits, including the positive impact of the Calvin Klein women's sportswear and jeans wholesale transition in-house. And in Asia Pacific, revenue is planned down mid-single digits in constant currency.
We continue to expect gross margin to decrease approximately 250 basis points versus last year with the incremental headwind from increased tariff rates offset by the improvements we realized in the second quarter. On SG&A, we continue to expect expense to be lower in constant currency in 2025 compared to 2024, our SG&A expenses as a percentage of revenue to decrease approximately 100 basis points reflecting significant cost savings connected to our growth driver five actions. These actions will simplify our operating model to drive more efficient ways of working, focus on our global technology stack, our global distribution network, our operating model in Europe, and our support functions.
And through the end of the second quarter, we have already made meaningful progress in each of these areas. We continue to expect these actions to deliver 200 to 300 basis points of operating margin expansion over time with nearly 200 basis points of that benefit expected to be realized in the fourth quarter by the actions we have completed to date. Interest expense is now projected to be approximately $80 million, and our tax rate for 2025 continues to be estimated at approximately 22%.
Before we open up for questions, I just want to conclude by saying that while we are navigating a dynamic and uncertain macroeconomic environment, within that backdrop, we continue to focus on taking proactive measures on what is within our control, and making progress in all dimensions of the business through our execution of the PVH plus plan. Building momentum into 2026 to deliver sustainable and increasingly profitable growth for the long term. And with that, operator, we would like to open it up to questions.
Operator: Thank you. And at this time, if you would like to ask a question, once again, to ask a question, please press the star and one on your telephone keypad. We'll take our first question from Jay Sole with UBS. Please go ahead. Your line is open.
Jay Sole: Great. Thank you so much. Stefan, just interesting to hear you talk about, you know, marketing investments. What are you seeing that drove that? And Zac, one for you. How do you think about marketing investments in the shape of the P&L? Thank you.
Stefan Larsson: Thanks, Jay. And yes, as I shared in my prepared remarks, the step up in execution in Q2 combined with our increased strength in product where we were able to lean into our biggest categories, most iconic categories, and then drive product innovation within our biggest franchise within those categories and then amplify that with our unique approach to market. And that's why you see our investments, we come up in the back half. Because we are, for the back half, continue to build on the momentum you saw in Q2.
So you will see in Calvin Klein, you will see us leaning into the iconic strength of two of the biggest categories underwear, denim, build immense on the Bad Bunny, positive Bad Bunny product innovation, Bad Bunny amplified effect we had in the spring. Will continue in the fall. I believe we have the biggest and strongest lineup of global mega talent to do that in men's and in women's. So what you will see also is the same approach as we took with men's underwear and put innovation in our biggest franchise. We do the same in women's. And if you look at Tommy, you have there are two ways we do it.
One is strengthening the seasonal campaigns full funnel. And you saw yesterday we just launched our fall campaign. And then for Tommy, we also have the lifestyle collaborations with Formula One. So very successful on the F1 movie collaboration. And then now building into the F1 with Cadillac. And then we have the sale GPs like Formula One racing on water. So but it's leveraging the strength of the product with the strength of the cut-through marketing and doing that full funnel. And that gives us the confidence to invest more than what we had planned.
Zac Coughlin: Yeah. Hi, Jay. Thanks for the question. You know, on the second half in terms of SG&A continue to make significant progress. On our value driver five actions we've previously talked about. We've committed to delivering two to 300 basis points of improvement over time with 200 basis points of that exiting this year. That's all on track. And including in Q2, we saw significant SG&A leverage with over 100 basis points coming from these actions. As we then look into Q3, those savings continue, but as Stefan mentioned, we are also investing in marketing to build that momentum for the second half and for holiday.
So we will see deleverage in SG&A in Q3, but that's more than by that increased marketing spending. Then by the time we get to Q4, we back leveraging the SG&A, as we finish up delivering that 200 basis points on the value driver five that we had committed earlier this year by the end of the year.
Jay Sole: Got it. Super helpful. Thank you so much.
Operator: Our next question comes from Michael Binetti with Evercore. Please go ahead. Your line is open.
Michael Binetti: Thanks for taking our question. Let me ask on tariffs. So I'm curious, it seems like your guidance in the third quarter lets us get to about 280 basis points of pressure in gross margin. In the fourth quarter, Zac, you said that's the tariffs start the timing of tariffs starting to show up. And you gave us a sense of the unmitigated tariff pressure. I'm curious how we should think about that rolling into 2026. Or is the tariff impact to grosses continuing to accelerate and then you have some more time to think about mitigation efforts maybe how you balance that, what levers you can pull as you roll into 2026.
Or a reasonable time to get to neutral you said you plan to offset them over time. And then just a quick update on the outlets. I think you said you know, the outlet traffic was down double digits earlier in the year. Usually, when we see the dollar weekend like this, it helps with tourism. Obviously, there's some political things going on right now that might disrupt normal flows. Maybe just help us think about how you're looking at the outlets as we think about the back half.
Stefan Larsson: Yes. Thanks, Michael. So let me start on the on let me start where you ended on the on the outlet traffic. So we saw traffic sequentially improve. From Q1 to Q2, including the outlet traffic. So that's encouraging. When it comes to the tariffs, before I hand it over to Zac for more of the technical answer, on the highest level, tariffs are impacting everyone in our sector. But we have 70% of our revenues coming from our international business. So that's with a very large diversified supply chain coming with that. Also have the strength of being Calvin Klein and Tommy Hilfiger. So we have two of the most iconic beloved premium brands in the market.
And through the PVH plus plan, that we have for a number of years now executed very disciplined on, we are driving relevance into our iconic beloved brands. Product strength, consumer engagement strength, strength in the marketplace execution. So that is all to drive increasingly profitable growth, like growth with pricing power. So that's from a strategic perspective on how to navigate the tariffs really important to have that kind of brand strength and deliver that value, increased value to the consumer. When it comes to tactically here and now, just like all of our competitors, we are working through how to best mitigate the tariffs in a way that keeps our competitive positioning.
And in doing that, we assess and you will hear Zac share more details, but we assess every part of the value chain. And it's still early, but we are well positioned to work through this in a competitive way. So, Zac, do you mind taking it one step?
Zac Coughlin: Absolutely. Thanks, Michael, for the question. You know, with a diverse and resilient supply chain, we've successfully navigated through many disruptive times before. And so we're confident in our ability to manage to this very dynamic environment also. We'd previously communicated that we'd mitigate approximately 50% of the cost of the prior cost in 2025 with more over time. With the newly announced rates coming in for Q4 for us around two times higher than we previously had talked about, we do see that mitigation cost being percentage being a little bit lower for 2025. But most importantly, we expect to continue to expand on our mitigation efforts through the strategic actions throughout 2026.
You know, Stefan mentioned we feel really good about the premium positioning of our brands, and we'll continue to look at all levers across the entire value chain to mitigate the impact. This includes continuing to prioritize supply chain internal efficiencies first. And any pricing actions we take will be targeted. Based on where we have pricing power. That's really important and always being sure to balance that price value for the consumer.
Michael Binetti: Thanks a lot for the help, guys.
Stefan Larsson: Thanks, Mike.
Operator: Thank you. Our next question comes from Brooke Roach with Goldman Sachs. Please go ahead. Your line is open.
Brooke Roach: Good morning, and thank you for taking our question. Stefan, can you give us an operational update on your transformation within Calvin Klein? As you look ahead into 2026, what are the opportunities for improved execution in North America and globally?
Stefan Larsson: Yeah. Thanks, Brooke. So pleased to share this quarter as a follow-up to last quarter when we flagged the operational challenges we had in the first season of setting up the Calvin Klein global product capabilities in New York. So I'm pleased to share that what we set out how we set out to get through that. Is what we have delivered on during this quarter. So if you look at Fall 2025, we have made the sequential improvements from spring that we set out to do. If you look at Spring 2026, we have already secured the go-in margin improvements we targeted to get back. And we are on time for the deliveries.
So from there, we are back fully back on track. So David and the Calvin team have done a really, really good job working through that and coming back why we're setting up these capabilities and why it was worth it is because it will pay off for many years to come. We now have the a strong global product engine for both Calvin and Tommy for each of the global brands. Serving our regions. So feel very good about how we work through it.
Brooke Roach: Great. Thanks so much. Best of luck going forward.
Stefan Larsson: Thanks.
Operator: Thank you. Our next question comes from Matthew Boss with JPMorgan. Please go ahead.
Matthew Boss: Great. Thanks. So, Stefan, maybe in The Americas, could you break down the drivers of the sequential improvement at direct to consumer? Relative to trends that you've embedded for the back half? And then in Europe, could you just elaborate on the composition of your fall '25 order book and initial indications for spring 2026?
Stefan Larsson: Yes. So thanks, Matt. So encouraging to see the improved D2C trends in North America. Both they would they were driven both they were both significant and sequentially improved from Q1. And three main drivers behind that. So first, we were able to leverage the increased strength in product across both Tommy and Calvin. And then we were able to amplify that product strength with the improved marketing. And the way that we improved marketing in North America and each of the regions play a really important role is yes, you need to have the culture campaigns from each of the brands, which we now have.
But then what North America did and the other regions also did in the quarter was they expanded the mid-funnel in the marketing. So if you look at marketing from top of funnel where you have Bad Bunny, and awareness driving, and then you have mid-funnel, which is the product storytelling, the increased consideration. You take the aspirational strength, that you create with a product innovation and Bad Bunny and then you make it shoppable. And that part was really expanded and really drove engagement with the consumer. So the third part was how we then drove new consumers at a growth rate we haven't seen before.
Which drove retained consumers up and we reactivate more consumers than we did prior. So it's a combination of the strength of the product, strength of the marketing, full funnel expansion, and then an increase consumer and end customer focus. So really well done and that is something that's repeatable and systematic that we will continue to build out. Yes. And then Europe. Thanks, Zach. Europe, when it comes to the order books, really exciting to see. So you look at fall, we started to grow the order books in Europe. Again, after our quality of sales initiatives. And we do that because of the strength in products across the board in both Calvin and Tommy.
And in Calvin, it's, of course, driven by the strength of underwear and denim. And in Tommy, it's more across the lifestyle. You see the polos, the cable knits, the outerwear, so strength in order books across the board in Tommy. And for spring, we were able to continue to build on that strength. And it's the reason why we are able to drive growth in the forward-looking order books for Spring is same reason as we drove it for fall. That is a continuation of strengthening the product based on our key growth categories, based on putting more innovation into the product, and our partners seeing and recognizing that.
So very well done by Fredrik and the team in Europe.
Matthew Boss: It's great color. Best of luck.
Stefan Larsson: Thank you.
Operator: Thank you. Our next question comes from Dana Telsey with Telsey Group. Dana, your line is open.
Dana Telsey: Good morning, everyone. Sorry. I the mute button was on. Morning, everyone. So thank you for taking the question. As you think about your business, 70% international versus domestic, what are you seeing in the different promotional trends overseas versus here in The US? And then, Stefan, you noted the new store in Tokyo. What l we've heard about other enhancements being made to the store portfolio. What should we be looking forward to with SoHo and perhaps other stores beyond outlets? Thank you.
Stefan Larsson: Yeah. Thanks, Dana. And let's start with your question around a consumer across the world. So as everyone else in North America, we have the uncertainty in the back half of tariffs. We don't yet know how the consumer will respond. What we do know is every improvement we put into the desirability of the iconic strength of our brands, will resonate with the consumer. And in Europe, we see the backdrop and the consumer remains stable. We have seen that for a number of quarters.
And in APAC, we continue to see a choppy backdrop but exciting to see in Q2 that us leaning into the relevance, the strength of the brand, product, marketing, very strong execution in the channels in APAC, we have stabilized our performance there and sequentially significantly improved it. Second question was relating to stores. So very exciting today and tomorrow we open our Harajuku flagship store in Tokyo. So it's one of the most important brand building locations for APAC and for us globally. And for anyone in our sector globally. We have the biggest store the most exciting brand expression of Calvin Klein. So David is there with the team.
Operator: And we are back in session.
Dana Telsey: And ladies and gentlemen, we are experiencing technical difficulties. Please remain on the line.
Stefan Larsson: Can you hear us?
Operator: And I can hear you loud and clear. Please resume with your presentation.
Stefan Larsson: Good question. Dana, are you still there?
Dana Telsey: I'm still here. Yes. It was about the stores you were getting to.
Stefan Larsson: Yeah. Where Yeah. Where did they cut off on us there anyway? You cut off about Harajuku that the team is over there now.
Zac Coughlin: Alright. Alright. I think even though I'm excited about Harajuku and our flagship stores, I wanna make sure I don't take you through it twice. But yeah, Harajuku opens tomorrow. It's our biggest and best flagship expression for Calvin so far. It's a really important location. Not only for Japan, but for APAC and for us globally to build the brand relevance. So what to your point opens at the end of the year, and same there, really important shopping destination also for our global consumers coming into New York to experience the brand. Very exciting. And then in parallel to the flagships, what we really lean into is the renovations of our fleet.
So we are getting everything set up to over the next three years. Renovate and upgrade the majority of our fleet. Globally. So more on that later.
Dana Telsey: Thank you.
Stefan Larsson: Thanks, Dana. We have time for one more question.
Operator: Thank you. Guys, us. Sounds like it may have cut off again. And, Tom, your line is open. Please proceed with your question. And once again, Tom, can you please unmute your phone? Your line is open. Please proceed with your question.
Tom: Hey. Hi. Thanks for taking my question. Hope hopefully, you can hear me. Yes. I want to ask about the North American wholesale environment. You know, think a lot of brands have talked about a lot of caution for the second half. From their wholesale partners. Have you know, seen any incremental, caution from your wholesale partners in North America? And, you know, is there any impact on the insourcing of the of the G3 license you know, based on the on the wholesale environment. Thanks.
Stefan Larsson: Yeah, thank you. So let's start with first half or second quarter in Wholesale North America. We had a benefit of the intake and relaunch of the Calvin Klein women's sportswear and jeans businesses. As you mentioned, then what you also see from the second quarter is that we grow with our most important full price partners. And then thirdly, there is a normalization of wholesale shipment across first half second half. So Zac, do you want to say a few words around?
Zac Coughlin: Yes, of course. The last year we had a lighter weighting of shipments in the first half in wholesale than normal. A little bit heavier in the second half. As we moved into 2025, we've normalized that to a historical trend. So first half and second half are relatively normal. So what we see is in the first half of the year, a little bit of a stronger amount of growth in the front end. We'll see that normalize in second half a little bit lower, in third quarter.
Stefan Larsson: Alright. So with that, apologize for any tech difficulties. Hope you heard most of the call. We are on a multiyear journey to build Calvin and Tommy into their full potential. Quarter by quarter, step by step, you'll see us add strength, desirability, and engaging our consumer and leaning into that brand love and expanding our PVHX. So Q2 was an example of that. We continue heads down executing on the plan and look forward to update you next quarter.
Zac Coughlin: Thank you.
Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.