PVH CORP. We aggregate our reporting segments into three main businesses: (i)Tommy Hilfiger , which consists of the businesses we operate under ourTOMMY HILFIGER trademarks; (ii)Calvin Klein , which consists of the businesses we operate under ourCalvin Klein trademarks; and (iii) Heritage Brands, which consists of the businesses we operate under our Warner's, Olga and True&Co. trademarks, the Van Heusen, IZOD, ARROW andGeoffrey Beene trademarks, which we owned untilAugust 2, 2021 and now license back for certain product categories, the Speedo trademark, which we licensed forNorth America and theCaribbean untilApril 6, 2020 , and other licensed trademarks. References to brand names are to registered and common law trademarks owned by us or licensed to us by third parties and are identified by italicizing the brand name.
OVERVIEW
The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our consolidated financial statements and the accompanying notes, which are included in the immediately preceding item of this report. We are one of the largest global apparel companies in the world, with a history going back 140 years. InMarch 2020 , we marked our 100-year anniversary as a listed company on theNew York Stock Exchange . We manage a portfolio of iconic brands, includingTOMMY HILFIGER ,Calvin Klein , Warner's, Olga and True&Co., which are owned, Van Heusen, IZOD, ARROW andGeoffrey Beene , which we owned through the second quarter of 2021 and now license back for certain product categories, and other licensed brands. We also had a perpetual license for Speedo inNorth America and theCaribbean untilApril 6, 2020 . We entered into a definitive agreement onJune 23, 2021 to sell certain of our heritage brands trademarks, including IZOD, Van Heusen, ARROW andGeoffrey Beene , as well as certain related inventories of our Heritage Brands business, toAuthentic Brands Group ("ABG") and other parties (the "Heritage Brands transaction"). We completed the sale on the first day of the third quarter of 2021. Our business strategy is to win with the consumer by driving brand and product relevance, while strengthening our commitment to sustainability and circularity. We are focused on driving the success of our product by focusing on key growth categories and developing strong hero product that the consumer desires, connecting the products to where the consumer is shopping. Our brands are positioned to sell globally at various price points and in multiple channels of distribution. This enables us to offer differentiated products to a broad range of consumers, reducing our reliance on any one demographic group, product category, price point, distribution channel or region. We also license the use of our trademarks to third parties and joint ventures for product categories and in regions where we believe our licensees' expertise can better serve our brands. We generated revenue of$7.1 billion and$9.9 billion in 2020 and 2019, respectively. Over 60% of our revenue in 2020 and over 50% of our revenue in 2019 was generated outside ofthe United States . Our business was significantly negatively impacted by the COVID-19 pandemic during 2020, resulting in an unprecedented material decline in revenue. Our global lifestyle brands,TOMMY HILFIGER andCalvin Klein , accounted for over 85% of our revenue during 2020 and 2019. RESULTS OF OPERATIONS COVID-19 Pandemic Update The COVID-19 pandemic has had, and continues to have, a significant impact on our business, results of operations, financial condition and cash flows from operations.
Our retail stores have been, and continue to be, impacted by temporary closures, reduced hours and reduced occupancy levels as a result of the pandemic:
•Virtually all of our retail stores were temporarily closed for varying periods of time throughout the first quarter and into the second quarter of 2020, but had reopened inJune 2020 and were operating at significantly reduced capacity for the remainder of the quarter. •During the first quarter of 2021, our retail stores continued to face significant pressure as a result of the pandemic, including temporary store closures for a significant percentage of our stores inEurope ,Canada andJapan . Our retail stores continued to face some pressure during the second quarter of 2021, with certain of our retail stores inEurope ,Australia andJapan temporarily closed for varying periods of time during the quarter. 42 -------------------------------------------------------------------------------- •In addition, ourNorth America retail stores have been, and continue to be, challenged by the lack of international tourists coming tothe United States , as stores located in international tourist destinations represent a significant portion of that business. Our brick and mortar wholesale customers and licensing partners also have experienced significant business disruptions as a result of the pandemic, with several of ourNorth America wholesale customers filing for bankruptcy in 2020. Our wholesale customers and franchisees globally generally have experienced temporary store closures at the same time as us. Although most of our wholesale customers' and franchisees' stores had reopened the majority of their locations across all regions bymid-June 2020 , there was a significant level of inventory that remained in their stores. The elevated inventory levels, as well as lower traffic and consumer demand, resulted in a sharp reduction in shipments to these customers in 2020. Our digital channels, which have historically represented a less significant portion of our overall business, experienced strong growth during 2020, both with respect to sales to our traditional and pure play wholesale customers, as well as within our own directly operated digital commerce businesses across all brand businesses and regions. While digital growth has been, and is expected to be, less pronounced in 2021 as stores have reopened and capacity restrictions have lessened, our digital penetration as a percentage of total revenue has been, and is expected to remain, consistent with 2020. In addition, the pandemic has impacted, and continues to impact, our supply chain partners, including third party manufacturers, logistics providers and other vendors, as well as the supply chains of our licensees. A current vessel and container shortage globally, as well as factory delays as a result of COVID-19 cases in some of our key sourcing countries has delayed and is expected to continue to delay inventory orders and, in turn, deliveries to our wholesale customers and availability in our stores and for our directly operated digital commerce businesses. These supply chain disruptions have impacted our inventory levels in the first half of 2021 and could impact our sales volumes in future periods. Our 2021 outlook contemplates higher freight and other logistics costs, including air freight, in the second half of the year to mitigate delays of approximately four to six weeks on average for certain inventory orders, but does not contemplate any greater supply chain disruptions beyond that. We continue to monitor these delays and other potential disruptions in our supply chain and will implement mitigation plans as needed. Throughout the pandemic, our top priority has been to ensure the health and safety of our associates, consumers and employees of our business partners around the world. Accordingly, we have implemented health and safety measures to support high standards in our retail stores, office and distribution centers, including temporary closures, reduced occupancy levels, and social distancing and sanitization measures, as well as changes to fitting room use in our stores. We have incurred and expect to continue to incur additional costs associated with these measures. We took the following actions, starting in the first quarter of 2020, to reduce operating expenses in response to the pandemic and the evolving retail landscape: (i) reducing payroll costs, including temporary furloughs, salary and incentive compensation reductions, decreased working hours, and hiring freezes, as well as taking advantage of COVID-related government payroll subsidy programs primarily in international jurisdictions, (ii) eliminating or reducing expenses in all discretionary spending categories and (iii) reducing rent expense through rent abatements negotiated with landlords for certain stores affected by temporary closures. We also announced inJuly 2020 plans to streamline our North American operations to better align our business with the evolving retail landscape, including (i) a reduction in ourNorth America office workforce by approximately 450 positions, or 12%, across all three brand businesses and corporate functions, which is expected to result in annual cost savings of approximately$80 million , and (ii) the exit from our Heritage Brands Retail business, which was substantially completed in the second quarter of 2021. InMarch 2021 , we announced plans to reduce our workforce, primarily in certain international markets, and to reduce our real estate footprint, including reductions in office space and select store closures, which are expected to result in annual cost savings of approximately$60 million . We also have taken and continue to take actions to manage our working capital and liquidity. Please see the section entitled "Liquidity and Capital Resources" below for further discussion. The impacts of the COVID-19 pandemic resulted in an unprecedented material decline in our revenue and earnings in 2020, including$1.021 billion of pre-tax noncash impairment charges recognized during the year, primarily related to goodwill, tradenames and other intangible assets, and store assets. There continues to be uncertainty with respect to the impact of the pandemic on our business and the businesses of our licensees and wholesale customers, and our revenue and earnings in 2021 may be subject to significant material change. We currently expect the pandemic will impact our revenue and earnings in the second half of 2021. While our international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels for the remainder of 2021, ourNorth America businesses are expected to remain challenged, as international tourism, which is the source of a significant portion of regional revenue, is not expected to return to any significant level this year. 43 --------------------------------------------------------------------------------
Operations Overview
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, neckwear, handbags, accessories, footwear and other related products under owned and licensed trademarks, and (ii) the sale of certain of these products through (a) approximately 1,600 Company-operated free-standing retail store locations worldwide under ourTOMMY HILFIGER andCalvin Klein trademarks, (b) approximately 1,400 Company-operated shop-in-shop/concession locations worldwide under ourTOMMY HILFIGER andCalvin Klein trademarks, and (c) digital commerce sites worldwide under ourTOMMY HILFIGER andCalvin Klein trademarks, and inthe United States through our directly operated digital commerce site for Van Heusen and IZOD, which will cease operations during the third quarter of 2021 in connection with the Heritage Brands transaction. We announced inJuly 2020 a plan to exit our Heritage Brands Retail business, which consisted of 162 directly operated stores inNorth America and was substantially completed in the second quarter of 2021. 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 six reportable segments: (i)Tommy Hilfiger North America ; (ii)Tommy Hilfiger International ; (iii)Calvin Klein North America ; (iv)Calvin Klein International ; (v) Heritage Brands Wholesale; and (vi) Heritage Brands Retail. Our Heritage Brands Retail segment has ceased operations following the substantial completion of our exit from the Heritage Brands Retail business in the second quarter of 2021. We have entered into the following transactions, which impact our results of operations and comparability among the periods, including our full year 2021 expectations as compared to full year 2020, as discussed in the section entitled "Results of Operations" below: •We entered into a definitive agreement inJune 2021 to sell certain of our heritage brands trademarks, including IZOD, Van Heusen, ARROW andGeoffrey Beene , as well as certain related inventories of our Heritage Brands business, to ABG and other parties for$223 million in cash, subject to a customary adjustment, and subsequently completed the sale on the first day of the third quarter of 2021. We plan to utilize approximately$200 million of the net proceeds to repurchase shares of our common stock. We expect to record a pre-tax net gain of approximately$110 million in the third quarter of 2021 in connection with the closing of the Heritage Brands transaction, which includes an estimated gain on the sale, less costs to sell, and severance and other termination benefits associated with the transaction. Please see Note 5, "Assets Held For Sale," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. •We announced inMarch 2021 plans to reduce our workforce, primarily in certain international markets, and to reduce our real estate footprint, including reductions in office space and select store closures, which are expected to result in annual cost savings of approximately$60 million . We recorded pre-tax costs of$45 million during the twenty-six weeks endedAugust 1, 2021 consisting of (i)$28 million of noncash asset impairments, (ii)$13 million of severance and (ii)$4 million of contract termination and other costs. We expect to incur additional pre-tax costs of approximately$15 million during the remainder of 2021 in connection with these actions, primarily consisting of severance, and contract termination and other costs. Please see Note 17, "Exit Activity Costs," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. •We announced inJuly 2020 plans to streamline our North American operations to better align our business with the evolving retail landscape including (i) a reduction in our office workforce by approximately 450 positions, or 12%, across all three brand businesses and corporate functions (the "North America workforce reduction"), which is expected to result in annual cost savings of approximately$80 million , and (ii) the exit from our Heritage Brands Retail business, which was substantially completed in the second quarter of 2021. All costs related to theNorth America workforce reduction were incurred by the end of 2020. We recorded pre-tax costs of$21 million during the twenty-six weeks endedAugust 1, 2021 in connection with the exit from the Heritage Brands Retail business, consisting of (i)$11 million of severance and other termination benefits, (ii)$6 million of accelerated amortization of lease assets and (iii)$4 million of contract termination and other costs. All costs related to the exit from the Heritage Brands Retail business were substantially incurred by the end of the second quarter 2021. We recorded pre-tax costs of$69 million during 2020, including (i)$40 million related to theNorth America workforce reduction, primarily consisting of severance, and (ii)$29 million in connection with the exit from the Heritage Brands Retail business, consisting of$15 million of severance,$7 million of noncash asset impairments and$7 million of accelerated amortization of lease assets and other costs. Please see Note 17, "Exit Activity Costs," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. 44 -------------------------------------------------------------------------------- •We completed the sale of ourSpeedo North America business toPentland Group PLC ("Pentland"), the parent company of the Speedo brand, inApril 2020 for net proceeds of$169 million (the "Speedo transaction"). Upon the closing of the transaction, we deconsolidated the net assets of theSpeedo North America business. We recorded a pre-tax noncash loss of$142 million in the fourth quarter of 2019, when the transaction was announced, consisting of (i) a noncash impairment of our perpetual license right for the Speedo trademark and (ii) a noncash loss to reduce the carrying value of the business to its estimated fair value, less costs to sell. We recorded an additional pre-tax noncash net loss of$3 million in the first quarter of 2020 upon the closing of the transaction, consisting of (i) a$6 million noncash loss resulting from the remeasurement of the loss recorded in the fourth quarter of 2019, primarily due to changes to the net assets of theSpeedo North America business subsequent toFebruary 2, 2020 , partially offset by (ii) a$3 million gain on our retirement plans. Please see Note 4, "Acquisitions and Divestitures," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. •We completed the acquisition of the approximately 78% interest inGazal Corporation Limited ("Gazal") that we did not already own (the "Australia acquisition") in 2019. Prior to the closing of the acquisition, we, along withGazal , jointly owned and managed a joint venture,PVH Brands Australia Pty. Limited ("PVH Australia"), which licensed and operated businesses under theTOMMY HILFIGER ,Calvin Klein and Van Heusen brands, along with other licensed and owned brands. PVH Australia came under our full control as a result of the acquisition and we now operate directly those businesses. The aggregate net purchase price for the shares acquired was$59 million , net of cash acquired and after taking into account the proceeds from the divestiture to a third party of an office building and warehouse owned byGazal inJune 2019 . Pursuant to the terms of the acquisition agreement, key executives ofGazal and PVH Australia exchanged a portion of their interests inGazal for approximately 6% of the outstanding shares of our previously wholly owned subsidiary that acquired 100% of the ownership interests in theAustralia business, for which we recognized a liability on the date of the acquisition. We settled inJune 2020 a portion of the liability for this mandatorily redeemable non-controlling interest for$17 million , and settled inJune 2021 the remaining liability for$24 million . In connection with theAustralia acquisition we recorded a pre-tax expense of$5 million during 2020 in interest expense resulting from the remeasurement of this mandatorily redeemable non-controlling interest. Please see Note 4, "Acquisitions and Divestitures," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. OurTommy Hilfiger andCalvin Klein businesses each have substantial international components that expose us to significant foreign exchange risk. Our Heritage Brands business also has international components but those components are not significant to the business. Our results of operations in local foreign currencies are translated intoUnited States dollars using an average exchange rate over the representative period. Accordingly, our results of operations are unfavorably impacted during times of a strengtheningUnited States dollar against the foreign currencies in which we generate significant revenue and earnings and favorably impacted during times of a weakeningUnited States dollar against those currencies. Over 60% of our 2020 revenue was subject to foreign currency translation.The United States dollar strengthened against most major currencies in 2019 and into the first half of 2020, but then weakened against those currencies in the latter half of 2020, particularly the euro, which is the foreign currency in which we transact the most business. We currently expect our 2021 revenue and net income to increase by approximately$160 million and$25 million , respectively, due to the impact of foreign currency translation. There is also a transactional impact on our financial results because inventory typically is purchased inUnited States dollars by our foreign subsidiaries. Our results of operations will be unfavorably impacted during times of a strengtheningUnited States dollar, as the increased local currency value of inventory results in a higher cost of goods in local currency when the goods are sold, and favorably impacted during times of a weakeningUnited States dollar, as the decreased local currency value of inventory results in a lower cost of goods in local currency when the goods are sold. We use foreign currency forward exchange contracts to hedge against a portion of the exposure related to this transactional impact. The contracts cover at least 70% of the projected inventory purchases inUnited States dollars by our foreign subsidiaries. These contracts are generally entered into 12 months in advance of the related inventory purchases. Therefore, the impact of fluctuations ofthe United States dollar on the cost of inventory purchases covered by these contracts may be realized in our results of operations in the year following their inception, as the underlying inventory hedged by the contracts is sold. We currently expect our 2021 net income to increase by approximately$35 million due to the transactional impact of foreign currency. Further, we have exposure to changes in foreign currency exchange rates related to our €1.125 billion aggregate principal amount of senior notes that are held inthe United States . The strengthening ofthe United States dollar against the euro would require us to use a lower amount of our cash flows from operations to pay interest and make long-term debt repayments, 45 -------------------------------------------------------------------------------- whereas the weakening ofthe United States dollar against the euro would require us to use a greater amount of our cash flows from operations to pay interest and make long-term debt repayments. We designated the carrying amount of these senior notes issued byPVH Corp. , aU.S. based entity, as net investment hedges of our investments in certain of our foreign subsidiaries that use the euro as their functional currency. As a result, the remeasurement of these foreign currency borrowings at the end of each period is recorded in equity.
SEASONALITY
Our business generally follows a seasonal pattern. Our wholesale businesses tend to generate higher levels of sales in the first and third quarters, while our retail businesses tend to generate higher levels of sales in the fourth quarter. Royalty, advertising and other revenue tends to be earned somewhat evenly throughout the year, although the third quarter tends to have the highest level of royalty revenue due to higher sales by licensees in advance of the holiday selling season. The COVID-19 pandemic has disrupted these patterns, however. We otherwise expect this seasonal pattern will generally continue. Working capital requirements vary throughout the year to support these seasonal patterns and business trends. Due to the above seasonal factors, as well as the COVID-19 pandemic, our results of operations for the thirteen and twenty-six weeks endedAugust 1, 2021 are not necessarily indicative of those for a full fiscal year.
Thirteen Weeks Ended
Total Revenue Total revenue in the second quarter of 2021 was$2.313 billion as compared to$1.581 billion in the second quarter of the prior year. The prior year period was impacted negatively by extensive temporary store closures, as virtually all of our retail stores and the majority of our wholesale customers' stores globally were closed during the first month of the second quarter of 2020 and were operating at significantly reduced capacity for the remainder of the prior year period. The increase in revenue of$732 million , or 46%, reflects: •The addition of an aggregate$332 million of revenue, or a 41% increase compared to the prior year period, attributable to ourTommy Hilfiger International andTommy Hilfiger North America segments, which included a positive impact of$53 million , or 7%, related to foreign currency translation.Tommy Hilfiger International segment revenue increased 40% (including an 8% positive foreign currency impact). Revenue in ourTommy Hilfiger North America segment increased 45% (including a 2% positive foreign currency impact). •The addition of an aggregate$332 million of revenue, or a 56% increase compared to the prior year period, attributable to ourCalvin Klein International andCalvin Klein North America segments, which included a positive impact of$39 million , or 7%, related to foreign currency translation.Calvin Klein International segment revenue increased 47% (including a 9% positive foreign currency impact). Revenue in ourCalvin Klein North America segment increased 75% (including a 1% positive foreign currency impact). •The net addition of an aggregate$69 million of revenue, or a 37% increase compared to the prior year period, attributable to our Heritage Brands Wholesale and Heritage Brands Retail segments. Our revenue in the second quarter of 2021 reflected a 77% increase in our revenue through our wholesale distribution channel and a 19% increase in our revenue through our direct to consumer distribution channel. Sales through our directly operated digital commerce businesses were flat as compared to the prior year period despite exceptionally strong growth in 2020 due to temporary store closures and occupancy restrictions. In addition, traffic in stores in the current year has significantly improved compared to the prior year due to reopenings and reduced occupancy restrictions. Our sales through digital channels, including the digital businesses of our traditional and pure play wholesale customers and our directly operated digital commerce businesses, as a percentage of total revenue was approximately 25%.
Gross Profit
Gross profit is calculated as total revenue less cost of goods sold and gross
margin is calculated as gross profit divided by total revenue. Included as cost
of goods sold are costs associated with the production and procurement of
product, such as inbound freight costs, purchasing and receiving costs and
inspection costs. Also included as cost of goods sold are the amounts recognized
on foreign currency forward exchange contracts as the underlying inventory
hedged by such forward exchange contracts is sold. Warehousing and distribution
expenses are included in selling, general and administrative ("SG&A")
46
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expenses. All of our royalty, advertising and other revenue is included in gross
profit because there is no cost of goods sold associated with such revenue. As a
result, our gross profit may not be comparable to that of other entities.
Gross profit in the second quarter of 2021 was $1.334 billion , or 57.7% of total
revenue, as compared to $883 million , or 55.9% of total revenue, in the second
quarter of the prior year. The 180 basis point increase was primarily driven by
(i) less promotional selling as compared to the second quarter of the prior year
and (ii) the favorable impact of the weaker United States dollar on our
international businesses that purchase inventory in United States dollars,
particularly our European businesses, as the decreased local currency value of
inventory results in lower cost of goods in local currency when the goods are
sold.
SG&A Expenses
SG&A expenses in the second quarter of 2021 were $1.062 billion , or 45.9% of
total revenue, as compared to $882 million , or 55.8% of total revenue, in the
second quarter of the prior year. The significant basis point decrease was
principally attributable to the leveraging of expenses driven by the increase in
revenue. Also impacting the decrease were (i) cost savings resulting from the
North America workforce reduction and (ii) the absence in 2021 of accounts
receivable losses recorded in the second quarter of 2020 as a result of the
COVID-19 pandemic. These decreases were mostly offset by (i) a reduction in 2021
of pandemic-related government payroll subsidy programs in international
jurisdictions, as well as rent abatements, and (ii) the absence in 2021 of
temporary cost savings initiatives implemented in April 2020 in response to the
pandemic, including temporary furloughs, and salary and incentive compensation
reductions.
Non-Service Related Pension and Postretirement Income
Non-service related pension and postretirement income in the second quarter of 2021 was$3 million as compared to$1 million in the second quarter of the prior year. Please see Note 9, "Retirement and Benefit Plans," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
Equity in Net Income (Loss) of Unconsolidated Affiliates
The equity in net income (loss) of unconsolidated affiliates was$4 million of income in the second quarter of 2021 as compared to a loss of$(4) million in the second quarter of the prior year. These amounts relate to our share of income (loss) from (i) our joint venture for theTOMMY HILFIGER ,Calvin Klein , Warner's, Olga, and other licensed trademarks inMexico , (ii) our joint venture for theTOMMY HILFIGER andCalvin Klein brands inIndia (our two prior joint ventures inIndia merged in the third quarter of 2020), (iii) our joint venture for the TOMMY HILFIGER brand inBrazil , and (iv) ourPVH Legwear LLC ("PVH Legwear") joint venture for theTOMMY HILFIGER ,Calvin Klein , IZOD, Van Heusen and Warner's brands and other owned and licensed trademarks inthe United States andCanada . The equity in net income (loss) in the prior year period reflected a reduction in income on our investments due to the negative impacts of the COVID-19 pandemic on our unconsolidated affiliates' businesses. Our investments in the joint ventures are being accounted for under the equity method of accounting.
Interest Expense, Net
Interest expense, net decreased to$26 million in the second quarter of 2021 from$32 million in the second quarter of the prior year, primarily due to (i) the absence in 2021 of a$5 million expense recorded in the second quarter of 2020 resulting from the remeasurement of a mandatorily redeemable non-controlling interest that was recognized in connection with theAustralia acquisition, as the measurement period ended in 2020, (ii) the impact of$700 million of voluntary long-term debt repayments made during the first half of 2021, and (iii) a decrease in interest rates as compared to the prior year, partially offset by (iv) the impact of the issuance inJuly 2020 of$500 million principal amount of 4 5/8% senior unsecured notes due 2025.
Income Taxes
The effective income tax rate for the second quarter of 2021 was 28.1% compared to (53.0)% in the second quarter of the prior year. The effective income tax rate for the second quarter of 2021 reflected a$71 million income tax expense recorded on$253 million of pre-tax income. The effective income tax rate for the second quarter of 2020 reflected an$18 million income tax expense recorded on$(34) million of pre-tax losses. Our effective income tax rate for the second quarter of 2021 was higher thanthe United States statutory income tax rate primarily due to the tax on foreign earnings in excess of a deemed return on tangible assets of foreign corporations (known as "GILTI") and the mix of foreign and domestic pre-tax results. 47 -------------------------------------------------------------------------------- Our effective income tax rate for the second quarter of 2020 was lower thanthe United States statutory income tax rate primarily due to (i) the impact of the$879 million of pre-tax goodwill impairment charges recorded during the first quarter of 2020, which were mostly non-deductible for tax purposes and factored into our annualized effective income tax rate, and resulted in a 14.6% decrease to our effective income tax rate, (ii) the tax effects of GILTI and (iii) the mix of foreign and domestic pre-tax results, as well as the distortive impact of these items on our effective income tax rate for the second quarter of 2020 as a result of the small pretax loss during the period.
Redeemable Non-Controlling Interest
We formed a joint venture inEthiopia with Arvind Limited ("Arvind") namedPVH Manufacturing Private Limited Company ("PVH Ethiopia") to operate a manufacturing facility that produces finished products for us for distribution primarily inthe United States . We held an initial economic interest of 75% in PVH Ethiopia, with Arvind's 25% interest accounted for as a redeemable non-controlling interest ("RNCI"). We consolidate the results of PVH Ethiopia in our consolidated financial statements. We, together with Arvind, amended, effectiveMay 31, 2021 , the capital structure of PVH Ethiopia and we now solely manage and effectively own all economic interests in the joint venture. Please see Note 6, "Redeemable Non-Controlling Interest," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. The net loss attributable to the RNCI in PVH Ethiopia was immaterial in the second quarters of 2021 and 2020. As a result of the amendments to the capital structure of PVH Ethiopia, we will not attribute any net income or loss in PVHEthiopia to an RNCI in future reporting periods.
Twenty-Six Weeks Ended
Total Revenue
Total revenue in the twenty-six weeks endedAugust 1, 2021 was$4.392 billion as compared to$2.925 billion in the twenty-six week period of the prior year. Virtually all of our retail stores were temporarily closed for varying periods of time throughout the first quarter and into the second quarter of 2020, but had reopened inJune 2020 and were operating at significantly reduced capacity for the remainder of the prior year period. The increase in revenue of$1.468 billion , or 50%, reflects: •The addition of an aggregate$739 million of revenue, or a 51% increase compared to the prior year period, attributable to ourTommy Hilfiger International andTommy Hilfiger North America segments, which included a positive impact of$125 million , or 9%, related to foreign currency translation.Tommy Hilfiger International segment revenue increased 56% (including an 11% positive foreign currency impact). Revenue in ourTommy Hilfiger North America segment increased 36% (including a 1% positive foreign currency impact). •The addition of an aggregate$640 million of revenue, or a 60% increase compared to the prior year period, attributable to ourCalvin Klein International andCalvin Klein North America segments, which included a positive impact of$82 million , or 8%, related to foreign currency translation.Calvin Klein International segment revenue increased 65% (including a 12% positive foreign currency impact). Revenue in ourCalvin Klein North America segment increased 51% (including a 1% positive foreign currency impact). •The addition of an aggregate$88 million of revenue, or a 22% increase compare to the prior year period, attributable to our Heritage Brands Retail and Heritage Brands Wholesale segments, which included a 7% decline resulting from theApril 2020 sale of theSpeedo North America business. Our revenue in the twenty-six weeks endedAugust 1, 2021 reflected a 64% increase in revenue through our wholesale distribution channel and a 35% increase in revenue through our direct to consumer distribution channel, which included a 24% increase in sales through our directly operated digital commerce businesses. Our sales through digital channels, including the digital businesses of our traditional and pure play wholesale customers and our directly operated digital commerce businesses, as a percentage of total revenue was approximately 25%. We currently expect that revenue will be impacted by the COVID-19 pandemic in the second half of 2021. While our international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels for the remainder of 2021, ourNorth America businesses are expected to remain challenged, as international tourism, which is the source of a significant portion of regional revenue, is not expected to return to any significant level this year. We currently expect revenue growth through our digital channels will be less pronounced for the remainder of 2021 as compared to the first half of 2021, although our digital penetration as a percentage of total revenue is expected to remain consistent. Our 2021 revenue outlook also reflects the Heritage Brands transaction, which closed on the first day of the third quarter of 2021 and will 48 -------------------------------------------------------------------------------- result in a decrease to our full year 2021 revenue of approximately 2% as compared to 2020. We currently expect total revenue for the full year 2021 to increase 26% to 28% compared to 2020, inclusive of a positive impact of approximately 2% related to foreign currency translation. Our 2021 revenue outlook does not contemplate any significant new temporary store closures, new lockdowns, or extensions of current lockdowns beyond what is already known. Our results may be subject to significant material change as a result of the occurrence of any of these, or any other, uncontemplated events. There continues to be uncertainty in 2021 with respect to the impact of the pandemic on our business and the businesses of our licensees and other business partners.
Gross Profit
Gross profit in the twenty-six weeks endedAugust 1, 2021 was$2.563 billion , or 58.3% of total revenue, as compared to$1.549 billion , or 53.0% of total revenue, in the twenty-six week period of the prior year. The 530 basis point gross margin increase was primarily driven by (i) less promotional selling as compared to the prior year period, (ii) the absence in 2021 of significant inventory reserves that had been recorded in the first quarter of 2020 as a result of the COVID-19 pandemic, (iii) the favorable impact of the weakerUnited States dollar on our international businesses that purchase inventory inUnited States dollars, particularly our European businesses, as the decreased local currency value of inventory results in lower cost of goods in local currency when the goods were sold, and (iv) the impact of a change in the revenue mix between our International andNorth America segments, as our International segments revenue was a larger proportion and these segments generally carry higher gross margins. We currently expect that gross margin for the full year 2021 will increase as compared to 2020, with gross margin for the remainder of 2021 continuing to reflect improvements as compared to the prior year. We currently expect gross margin for the full year 2021 to increase primarily due to (i) a significant reduction in the level of promotional selling and inventory liquidation as compared to 2020, as our inventories were significantly lower as of year-end 2020, (ii) the favorable impact of the weakerUnited States dollar on our international businesses that purchase inventory inUnited States dollars, particularly our European businesses, as the decreased local currency value of inventory results in lower cost of goods in local currency when the goods are sold and (iii) the impact of a change in the revenue mix between our International andNorth America segments as compared to the prior year as our International segments revenue has been, and is expected to continue to be a larger proportion in 2021 than in 2020 and generally carry higher gross margins, partially offset by (iv) higher freight and other logistics costs, including air freight, we expect to incur in the second half of 2021 to mitigate anticipated delays for certain inventory orders as a result of COVID-related supply chain disruptions. There continues to be uncertainty with respect to the impact of the COVID-19 pandemic on our business and the businesses of our licensees and other business partners, and our gross margin may be subject to significant material change. SG&A Expenses SG&A expenses in the twenty-six weeks endedAugust 1, 2021 were$2.101 billion , or 47.8% of total revenue, as compared to$1.822 billion , or 62.3% of total revenue, in the twenty-six week period of the prior year. The significant basis point decrease was principally attributable to the leveraging of expenses driven by the increase in revenue. Also impacting the decrease were (i) cost savings resulting from theNorth America workforce reduction, (ii) the absence in 2021 of accounts receivable losses recorded in the twenty-six weeks endedAugust 2, 2020 as a result of the COVID-19 pandemic, and (iii) the absence in 2021 of noncash store asset impairments recorded in the twenty-six week period of the prior year resulting from the impacts of the pandemic on our business. These decreases were partially offset by (i) a reduction in 2021 of pandemic-related government payroll subsidy programs in international jurisdictions, as well as rent abatements, (ii) the absence in 2021 of temporary cost savings initiatives implemented inApril 2020 in response to the pandemic, including temporary furloughs, and salary and incentive compensation reductions, (iii) costs incurred in connection with actions to streamline our organization through reductions in our workforce, primarily in certain international markets, and to reduce our real estate footprint, and (iv) the impact of the change in the revenue mix between our International andNorth America segments, as our International segments revenue was a larger proportion and these segments generally carry higher SG&A expenses as percentages of total revenue. We currently expect that SG&A expenses as a percentage of revenue for the full year 2021 will decrease as compared to 2020, primarily as a result of the leveraging of expenses driven by an expected increase in revenue. However, the increase in revenue we experienced in the first half of 2021 was greater than the increase in revenue we expect for the remainder of 2021, as virtually all of our retail stores were temporarily closed for varying periods of time throughout the first quarter and into the second quarter of 2020, but had reopened inJune 2020 . As such, we currently expect the leveraging of expenses to be less pronounced in the second half of 2021 as compared to the first half of 2021. The second half of 2021 also includes increases in marketing and other investments as compared to the first half of 2021, which we planned in the second half of the year to coincide with when we expected our stores to be mostly opened. Also impacting the decrease in SG&A expenses as a percentage of revenue for the full year 2021 as compared to the full year 2020 are: (i) cost savings resulting from the North 49 -------------------------------------------------------------------------------- America workforce reduction, (ii) the absence in 2021 of accounts receivable losses recorded in 2020 as a result of the COVID-19 pandemic, and (iii) the absence in 2021 of noncash store asset impairments recorded in 2020 resulting from the impacts of the pandemic on our business. These decreases are expected to be partially offset by (i) a reduction in 2021 of pandemic-related government payroll subsidy programs, as well as rent abatements, (ii) the absence in 2021 of temporary cost savings initiatives implemented inApril 2020 in response to the pandemic, including temporary furloughs, and salary and incentive compensation reductions, (iii) the net impact of one-time costs associated with reductions in our workforce, primarily in certain international markets, and in our real estate footprint, less the associated savings related to these actions and (iv) the impact of the change in the revenue mix between our International andNorth America segments, as our International segments revenue is expected to be a larger proportion in 2021 than 2020, and generally carry higher SG&A expenses as percentages of total revenue. There continues to be uncertainty with respect to the impact of the COVID-19 pandemic on our business in 2021 and our SG&A expenses may be subject to significant material change.
We recorded noncash impairment charges of$933 million during the twenty-six weeks endedAugust 2, 2020 resulting from the impacts of the COVID-19 pandemic on our business, including$879 million related to goodwill and$54 million related to other intangible assets, primarily our ARROW andGeoffrey Beene tradenames. The impairments resulted from interim impairment assessments of our goodwill and other intangible assets, which we were required to perform in the first quarter of 2020 due to the adverse impacts of the pandemic on our then current and estimated future business results and cash flows, as well as the significant decrease in our market capitalization as a result of a sustained decline in our common stock price. We have not recorded any further impairments of goodwill and other intangible assets since the first quarter of 2020. Please see Note 8, "Goodwill and Other Intangible Assets," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
Non-Service Related Pension and Postretirement Income
Non-service related pension and postretirement income was
Non-service related pension and postretirement income (cost) recorded throughout the year is calculated using actuarial valuations that incorporate assumptions and estimates about financial market, economic and demographic conditions. Differences between estimated and actual results give rise to gains and losses that are recorded immediately in earnings, generally in the fourth quarter of the year, which can create volatility in our results of operations. We currently expect that non-service related pension and postretirement income for the full year 2021 will be approximately$16 million . However, our expectation of 2021 non-service related pension and post-retirement income does not include the impact of an actuarial gain or loss. As a result of the recent volatility in the financial markets due, in part, to the impact of the COVID-19 pandemic, there is significant uncertainty with respect to the actuarial gain or loss we may record on our retirement plans in 2021. We may incur a significant actuarial gain or loss in 2021 if there is a significant increase or decrease in discount rates, respectively, or if there is a difference in the actual and expected return on plan assets. As such, our actual 2021 non-service related pension and postretirement income may be significantly different than our projections. Non-service related pension and postretirement income was$76 million in 2020, and included a$65 million actuarial gain on our retirement plans recorded in the fourth quarter. Other Noncash Loss, Net We recorded a noncash net loss of$3 million during the twenty-six weeks endedAugust 2, 2020 in connection with the Speedo transaction. Please see Note 4, "Acquisitions and Divestitures," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
Equity in Net Income (Loss) of Unconsolidated Affiliates
The equity in net income (loss) of unconsolidated affiliates was$8 million of income in the twenty-six weeks endedAugust 1, 2021 as compared to a loss of$(15) million in the twenty-six-week period of the prior year. These amounts relate to our share of income (loss) from (i) our joint venture for theTOMMY HILFIGER ,Calvin Klein , Warner's, Olga, and other licensed trademarks inMexico , (ii) our joint venture for theTOMMY HILFIGER andCalvin Klein brands inIndia (our two prior joint ventures inIndia merged in the third quarter of 2020), (iii) our joint venture for the TOMMY HILFIGER brand inBrazil , and (iv) ourPVH Legwear LLC joint venture for theTOMMY HILFIGER ,Calvin Klein , IZOD, Van Heusen and Warner's brands and other owned and licensed trademarks inthe United States andCanada . The twenty-six weeks endedAugust 2, 2020 also included a$12 million pre-tax noncash impairment of our investment inKarl Lagerfeld Holding B.V . ("Karl Lagerfeld"). 50 -------------------------------------------------------------------------------- Please see Note 7, "Investments in Unconsolidated Affiliates," in the Notes to the Consolidated Financial Statements included in Part I, Item I of this report for further discussion of our investment in Karl Lagerfeld. The equity in net income (loss) for the twenty-six weeks endedAugust 1, 2021 increased as compared to the prior year period due, in part, to the absence in 2021 of the$12 million pre-tax noncash impairment of our investment in Karl Lagerfeld recorded in 2020. In addition, the equity in net income (loss) for the current year period reflects an increase in income on our continuing investments compared to the prior year as the prior year period was negatively impacted by the effects of the COVID-19 pandemic on our unconsolidated affiliates' businesses. Our investments in the joint ventures are being accounted for under the equity method of accounting. We currently expect that our equity in net income (loss) of unconsolidated affiliates for the full year 2021 will increase as compared to 2020, primarily due to the absence in 2021 of the$12 million pre-tax noncash impairment of our investment in Karl Lagerfeld recorded in the first quarter of 2020, as well as an increase in the income on our continuing investments. However, for the second half of 2021 we expect the income on our continuing investments to be relatively flat as compared to the prior year period.
Interest Expense, Net
Interest expense, net increased to$56 million in the twenty-six weeks endedAugust 1, 2021 from$53 million in the twenty-six week period of the prior year, primarily due to (i) the impact of the issuance inApril 2020 of an additional €175 million principal amount of 3 5/8% senior unsecured notes due 2024 and inJuly 2020 of$500 million principal amount of 4 5/8% senior unsecured notes due 2025, partially offset by (ii) the impact of$700 million of voluntary long-term debt repayments made during the first half of 2021, and (iii) a decrease in interest rates as compared to the prior year. Interest expense, net for the full year 2021 is currently expected to be approximately$105 million compared to$121 million in 2020 primarily due to (i) the impact of the$700 million of voluntary long-term repayments made during the first half of 2021, (ii) a decrease in interest rates as compared to the prior year and (ii) the absence in 2021 of a$5 million expense recorded in 2020 resulting from the remeasurement of a mandatorily redeemable non-controlling interest that was recognized in connection with theAustralia acquisition, as the measurement period ended in 2020, partially offset by (iii) a full year impact in 2021 of the issuance of senior unsecured notes inApril 2020 andJuly 2020 . Income Taxes The effective income tax rate for the twenty-six weeks endedAugust 1, 2021 was 33.1% compared to 9.8% in the twenty-six week period of the prior year. The effective income tax rate for the twenty-six weeks endedAugust 1, 2021 reflected a$139 million income tax expense recorded on$421 million of pre-tax income. The effective income tax rate for the twenty-six weeks endedAugust 2, 2020 reflected a$(125) million income tax benefit recorded on$(1.273) billion of pre-tax losses. Our effective income tax rate for the twenty-six weeks endedAugust 1, 2021 was higher thanthe United States statutory income tax rate primarily due to the tax effects of GILTI and the mix of foreign and domestic pre-tax results. Our effective income tax rate for the twenty-six weeks endedAugust 2, 2020 was lower thanthe United States statutory income tax rate primarily due to (i) the impact of the$879 million of pre-tax goodwill impairment charges, which were mostly non-deductible for tax purposes and resulted in a 9.8% decrease in our effective income tax rate, (ii) the tax effects of GILTI and (iii) the mix of foreign and domestic pre-tax results. We file income tax returns in more than 40 international jurisdictions each year. A substantial amount of our earnings are in international jurisdictions, particularly inthe Netherlands and Hong Kong SAR, where income tax rates, coupled with special rates levied on income from certain of our jurisdictional activities, are lower thanthe United States statutory income tax rate. We currently expect that our effective income tax rate for the full year 2021 will be in a range of 17.0% to 18.0%. Our expectation that our effective income tax rate for the full year 2021 will be lower thanthe United States statutory income tax rate is principally due to the overall benefit of certain discrete items, including the favorable impact on certain liabilities for uncertain tax positions. There continues to be uncertainty with respect to the impact of the pandemic on our business and results of operations, which could affect our current expectation of our effective income tax rate in 2021. Our tax rate is affected by many factors, including the mix of international and domestic pre-tax earnings, discrete events arising from specific transactions and new regulations, as well as audits by tax authorities and the receipt of new information, any of which can cause us to change our estimate for uncertain tax positions. 51 --------------------------------------------------------------------------------
RNCI
The net loss attributable to the RNCI was immaterial in the twenty-six weeks endedAugust 1, 2021 andAugust 2, 2020 . We, together with Arvind, amended, effectiveMay 31, 2021 , the capital structure of PVH Ethiopia and we now solely manage and effectively own all economic interests in the joint venture. As a result of the amendments to the capital structure of PVH Ethiopia, we will not attribute any net income or loss in PVH Ethiopia to an RNCI in future reporting periods. Please see Note 6, "Redeemable Non-Controlling Interest," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity Update
The COVID-19 pandemic had a significant impact on our business, results of operations, financial condition and cash flows in 2020. Given the unprecedented effects of the pandemic on our business, we took certain actions to positively impact our financial position in 2020, including the issuance inApril 2020 of an additional €175 million principal amount of 3 5/8% senior unsecured notes due 2024 and inJuly 2020 of$500 million principal amount of 4 5/8% senior unsecured notes due 2025, as well as focused management of our working capital, with particular focus on our inventory levels, among others. We ended 2020 with$1.7 billion of cash on hand, which allowed us to make$700 million of voluntary long-term debt repayments during the twenty-six weeks endedAugust 1, 2021 , equal to the incremental amount we borrowed during 2020. We had also obtained a waiver inJune 2020 of the leverage and interest coverage ratios under our senior unsecured credit facilities (referred to as the "June 2020 Amendment"). During the relief period (as defined in theJune 2020 Amendment), the applicable margin for these facilities was increased 0.25% and we were not permitted to declare or pay dividends on our common stock or make share repurchases under our stock repurchase program, among other things. We terminated early, effectiveJune 10, 2021 , this temporary relief period, and are now permitted to resume share repurchases and payment of dividends on our common stock at the discretion of the Board of Directors (as discussed below in the section entitled "2019 Senior Unsecured Credit Facilities"). We intend to use approximately$200 million of the net proceeds from the Heritage Brands transaction, which closed on the first day of the third quarter of 2021, to repurchase shares of our common stock during the second half of 2021. We also announced inJune 2021 our intention to reinstate the dividend on our common stock.
We ended the second quarter of 2021 with
Cash Flow Summary and Trends
Cash and cash equivalents atAugust 1, 2021 was$1.153 billion , a decrease of$499 million from the$1.651 billion atJanuary 31, 2021 . The change in cash and cash equivalents included the impact of the$700 million of voluntary long-term debt repayments made during the twenty-six weeks endedAugust 1, 2021 . 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. Cash flow for the full year 2021 will be impacted by various factors in addition to those noted above and below in this "Liquidity and Capital Resources" section, including (i) the$700 million of voluntary long-term debt repayments made during the twenty-six weeks endedAugust 1, 2021 , (ii) the expected proceeds from the sale of certain assets of our Heritage Brands business for$223 million in cash, which closed on the first day of the third quarter of 2021, and (iii) the expected common stock repurchases under the stock repurchase program of approximately$200 million . There continues to be uncertainty with respect to the impacts of the COVID-19 pandemic. Our cash flows may be subject to material significant change, including as a result of the impacts of the pandemic on our earnings for the remainder of 2021, delays in collection of, or inability to collect on, certain trade receivables, and other working capital changes that we may experience as a result of the pandemic. As ofAugust 1, 2021 ,$719 million of cash and cash equivalents was held by international subsidiaries. Our intent is to reinvest indefinitely substantially all of our earnings in foreign subsidiaries outside ofthe United States . However, if management decides at a later date to repatriate these earnings tothe United States , we may be required to accrue and pay additional taxes, including any applicable foreign withholding tax andUnited States state income taxes. 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. 52 --------------------------------------------------------------------------------
Operations
Cash provided by operating activities was$332 million in the twenty-six weeks endedAugust 1, 2021 compared to$248 million in the twenty-six weeks endedAugust 2, 2020 . The increase in cash provided by operating activities as compared to the prior year period was primarily driven by a significant increase in net income (loss) as adjusted for noncash charges, partially offset by changes in our working capital, including (i) an increase in trade receivables, primarily driven by a significant increase in our wholesale revenue, (ii) an increase in inventories during the current period, primarily due to the planned increase in revenue for the remainder of the year, and (iii) a decrease in accounts payable, primarily due to the temporary extension of vendor payment terms in the prior year period. Our cash flows from operations in the twenty-six weeks endedAugust 2, 2020 were significantly impacted by widespread temporary store closures and other significant adverse impacts of the COVID-19 pandemic on our business. In an effort to mitigate the impacts of the pandemic, we have been and continue to be focused on working capital management. For the twenty-six weeks endedAugust 2, 2020 , we were particularly focused on tightly managing inventories, which included reducing and cancelling inventory commitments, increasing promotional selling, redeploying basic inventory items to subsequent seasons and consolidating future seasonal collections.
Supply Chain Finance Program
We have a voluntary supply chain finance program (the "SCF program") that provides our inventory suppliers with the opportunity to sell their receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. The SCF program is administered through third party platforms that allow participating suppliers to track payments from us and sell their receivables due from us to financial institutions. We are not a party to the agreements between the suppliers and the financial institutions and have no economic interest in a supplier's decision to sell a receivable. Our payment obligations, including the amounts due and payment terms, are not impacted by suppliers' participation in the SCF program. Accordingly, amounts due to suppliers that elected to participate in the SCF program are included in accounts payable in our consolidated balance sheets and the corresponding payments are reflected in cash flows from operating activities in our consolidated statements of cash flows. We have been informed by the third party administrators of the SCF program that suppliers had elected to sell approximately$430 million of our payment obligations that were outstanding as ofAugust 1, 2021 to financial institutions and approximately$740 million had been settled through the program during the twenty-six weeks endedAugust 1, 2021 . Capital Expenditures Our capital expenditures in the twenty-six weeks endedAugust 1, 2021 were$110 million compared to$108 million in the twenty-six weeks endedAugust 2, 2020 . We currently expect that capital expenditures for the full year 2021 will be in a range of$300 million to$325 million as compared to$227 million in 2020 and will include continued investments in (i) platforms and systems worldwide, including our digital commerce platforms, and (ii) enhancements to our warehouse and distribution network.
Investments in Unconsolidated Affiliates
We received dividends of$19 million from our investments in unconsolidated affiliates during the twenty-six weeks endedAugust 1, 2021 . These dividends are included in our net cash provided by operating activities in our Consolidated Statement of Cash Flows for the period.
Speedo Transaction
We completed the sale of ourSpeedo North America business to Pentland inApril 2020 for net proceeds of$169 million . Please see Note 4, "Acquisitions and Divestitures," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion. 53
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Heritage Brands Transaction
We entered into a definitive agreement inJune 2021 to sell certain of our heritage brands trademarks, including IZOD, Van Heusen, ARROW andGeoffrey Beene , as well as certain related inventories of our Heritage Brands business, to ABG and other parties for$223 million in cash, subject to a customary adjustment, and subsequently completed the sale on the first day of the third quarter of 2021. Please see Note 5, "Assets Held For Sale," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
Mandatorily Redeemable Non-Controlling Interest
TheAustralia acquisition agreement provided for key executives ofGazal and PVHAustralia to exchange a portion of their interests inGazal for approximately 6% of the outstanding shares of our previously wholly owned subsidiary that acquired 100% of the ownership interests in theAustralia business. We were obligated to purchase this 6% interest within two years of the acquisition closing in two tranches. The purchase price for the tranche 1 and tranche 2 shares was based on a multiple of the subsidiary's adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") less net debt as of the end of the measurement year, and the multiple varied depending on the level of EBITDA compared to a target. We purchased tranche 1 (50% of the shares) for$17 million inJune 2020 and tranche 2 (remaining 50% of the shares) for$24 million inJune 2021 (based on exchange rates in effect on the payment dates). We presented these payments within the Consolidated Statements of Cash Flows as follows: (i)$13 million and$15 million as financing cash flows for the twenty-six weeks endedAugust 2, 2020 andAugust 1, 2021 , respectively, which represented the initial fair values of the liabilities for the tranche 1 and tranche 2 shares, respectively, recognized on the acquisition date, and (ii)$5 million and$9 million as operating cash flows for the twenty-six weeks endedAugust 2, 2020 andAugust 1, 2021 , respectively, for the tranche 1 and tranche 2 shares, respectively, attributable to interest. Please see Note 4, "Acquisitions and Divestitures," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for further discussion.
Dividends
We suspended our dividends following the$3 million payment of a$0.0375 per common share dividend onMarch 31, 2020 in response to the impacts of the COVID-19 pandemic on our business. In addition, under the terms of theJune 2020 Amendment, we were not permitted to declare or pay dividends during the relief period (as defined below). However, effectiveJune 10, 2021 , we terminated early this relief period and are now permitted to declare and pay dividends on our common stock at the discretion of the Board of Directors. Please see the section entitled "2019 Senior Unsecured Credit Facilities" below for further discussion.
We announced in
Acquisition of Treasury Shares
The Board of Directors has authorized over time since 2015 an aggregate$2.0 billion stock repurchase program throughJune 3, 2023 . The program may be modified by the Board of Directors, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice. We suspended share repurchases under the stock repurchase program beginning inMarch 2020 , following the purchase of 1.4 million shares in open market transactions for$111 million completed earlier in the first quarter of 2020, in response to the impacts of the COVID-19 pandemic on our business. Purchases of$500,000 that were accrued for in our Consolidated Balance Sheet as ofFebruary 2, 2020 were also paid in the first quarter of 2020. In addition, under the terms of theJune 2020 Amendment, we were not permitted to make share repurchases during the relief period (as defined below). However, effectiveJune 10, 2021 , we terminated early this relief period and are now permitted to resume share repurchases at management's discretion. Please see the section entitled "2019 Senior Unsecured Credit Facilities" below for further discussion. The existing stock repurchase program remains authorized by the Board of Directors. As ofAugust 1, 2021 , the repurchased shares were held as treasury stock and$573 million of the authorization remained available for future share repurchases. Repurchases under the program, when it is being used, may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as we deem appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, trading restrictions under our insider trading policy and other relevant factors. 54 -------------------------------------------------------------------------------- We currently expect to utilize approximately$200 million of the net proceeds from the Heritage Brands transaction to repurchase shares of our common stock during the second half of 2021.
Financing Arrangements
Our capital structure was as follows: (In millions) 8/1/21 1/31/21 8/2/20 Short-term borrowings$ 19 $ -$ 71 Current portion of long-term debt 30 41 15 Finance lease obligations 13 13 14 Long-term debt 2,782 3,514 3,498 Stockholders' equity 5,033 4,730 4,583 In addition, we had$1.153 billion ,$1.651 billion and$1.394 billion of cash and cash equivalents as ofAugust 1, 2021 ,January 31, 2021 andAugust 2, 2020 , respectively. Short-Term Borrowings We had$19 million of borrowings outstanding under short-term lines of credit, overdraft facilities and short-term revolving credit facilities denominated in various foreign currencies as ofAugust 1, 2021 . The weighted average interest rate on funds borrowed as ofAugust 1, 2021 was 0.18%. These facilities provided for borrowings of up to$207 million based on exchange rates in effect onAugust 1, 2021 and are utilized primarily to fund working capital needs. The maximum amount of borrowings outstanding under these facilities during the twenty-six weeks endedAugust 1, 2021 was$23 million .
2021 Unsecured Revolving Credit Facility
OnApril 28, 2021 , we replaced our 364-day$275 million United States dollar-denominated unsecured revolving credit facility, which matured onApril 7, 2021 (the "2020 facility"), with a new 364-day$275 million United States dollar-denominated unsecured revolving credit facility (the "2021 facility"). The 2021 facility will mature onApril 27, 2022 . We paid approximately$600,000 of debt issuance costs in connection with the transaction. We had no borrowings outstanding under these facilities during the twenty-six weeks endedAugust 1, 2021 . The borrowings under the 2021 facility bear interest at variable rates calculated in a manner consistent with the 2020 facility. The current applicable margin with respect to the borrowings as ofAugust 1, 2021 was 1.375% for adjusted Eurocurrency rate loans and 0.375% for base rate loans. The applicable margin for borrowings is subject to adjustment (i) after the date of delivery of the compliance certificate and financial statements, with respect to each of our fiscal quarters, based upon our net leverage ratio or (ii) after the date of delivery of notice of a change in our public debt rating byStandard & Poor's or Moody's. The 2021 facility is subject to other terms and conditions and financial and non-financial covenants consistent with the 2020 facility. Please see Note 8, "Debt," in the Notes to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year endedJanuary 31, 2021 for further discussion of the 2020 facility.
Finance Lease Liabilities
Our cash payments for finance lease liabilities totaled
2019 Senior Unsecured Credit Facilities
We have senior unsecured credit facilities dueApril 29, 2024 (as amended, the "2019 facilities") that consist of a$1.093 billion United States dollar-denominated Term Loan A facility (the "USD TLA facility"), a €500 million euro-denominated Term Loan A facility (the "Euro TLA facility" and together with the USD TLA facility, the "TLA facilities") and senior unsecured revolving credit facilities consisting of (i) a$675 million United States dollar-denominated revolving credit facility, (ii) a CAD$70 million Canadian dollar-denominated revolving credit facility available inUnited States dollars or Canadian dollars, (iii) a 55 -------------------------------------------------------------------------------- €200 million euro-denominated revolving credit facility available in euro, British pound sterling, Japanese yen, Swiss francs, Australian dollars and other agreed foreign currencies and (iv) a$50 million United States dollar-denominated revolving credit facility available inUnited States dollars orHong Kong dollars. Borrowings under the 2019 facilities bear interest at variable rates calculated in the manner set forth in the terms of the 2019 facilities. We had loans outstanding of$891 million , net of debt issuance costs and based on applicable exchange rates, under the TLA facilities, no borrowings outstanding under the senior unsecured revolving credit facilities and$17 million of outstanding letters of credit under the senior unsecured revolving credit facilities as ofAugust 1, 2021 . We made payments totaling$707 million and$7 million on our term loans under the 2019 facilities during the twenty-six weeks endedAugust 1, 2021 andAugust 2, 2020 , respectively, and we expect to make long-term debt repayments of approximately$722 million during the full year 2021. The current applicable margin with respect to the TLA facilities and each revolving credit facility as ofAugust 1, 2021 was 1.375% for adjusted Eurocurrency rate loans and 0.375% for base rate or Canadian prime rate loans. The applicable margin for borrowings under the TLA facilities and the revolving credit facilities is subject to adjustment (i) after the date of delivery of the compliance certificate and financial statements, with respect to each of our fiscal quarters, based upon our net leverage ratio or (ii) after the date of delivery of notice of a change in our public debt rating byStandard & Poor's or Moody's. We entered into interest rate swap agreements designed with the intended effect of converting notional amounts of our variable rate debt obligation to fixed rate debt. Under the terms of the agreements, for the outstanding notional amount, our exposure to fluctuations in the one-monthLondon interbank offered rate ("LIBOR") is eliminated and we pay a fixed rate plus the current applicable margin. The following interest rate swap agreements were entered into or in effect during the twenty-six weeks endedAugust 1, 2021 and/orAugust 2, 2020 :
(In millions)
Notional Amount
Outstanding as
Initial Notional of August 1 ,
Designation Date Commencement Date Amount 2021 Fixed Rate Expiration Date
March 2020 February 2021 $ 50 $ 50 0.562% February 2023
February 2020 February 2021 50 50 1.1625% February 2023
February 2020 February 2020 50 50 1.2575% February 2023
August 2019 February 2020 50 50 1.1975% February 2022
June 2019 February 2020 50 50 1.409% February 2022
June 2019 June 2019 50 - 1.719% July 2021
January 2019 February 2020 50 - 2.4187% February 2021
November 2018 February 2019 139 - 2.8645% February 2021
October 2018 February 2019 116 - 2.9975% February 2021
June 2018 August 2018 50 - 2.6825% February 2021
June 2017 February 2018 306 - 1.566% February 2020
Our 2019 facilities require us to comply with customary affirmative, negative
and financial covenants, including a minimum interest coverage ratio and a
maximum net leverage ratio. A breach of any of these operating or financial
covenants would result in a default under the 2019 facilities. If an event of
default occurs and is continuing, the lenders could elect to declare all amounts
then outstanding, together with accrued interest, to be immediately due and
payable, which would result in acceleration of our other debt. Given the
disruption to our business caused by the COVID-19 pandemic and to ensure
financial flexibility, we amended these facilities in June 2020 to provide
temporary relief of certain financial covenants until the date on which a
compliance certificate was delivered for the second quarter of 2021 (the "relief
period") unless we elected earlier to terminate the relief period and satisfied
the conditions for doing so (the "June 2020 Amendment"). The June 2020 Amendment
provided for the following during the relief period, among other things, the (i)
suspension of compliance with the maximum net leverage ratio through and
including the first quarter of 2021, (ii) suspension of the minimum interest
coverage ratio through and including the first quarter of 2021, (iii) addition
of a minimum liquidity covenant of $400 million , (iv) addition of a restricted
payment covenant and (v) imposition of stricter limitations on the incurrence of
indebtedness and liens. The limitation on restricted payments required that we
suspend payments of dividends on our common stock and purchases of shares under
our stock repurchase program during the relief period. The June 2020 Amendment
also provided that during the relief period
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the applicable margin would be increased 0.25%. In addition, under the June 2020
Amendment, in the event there was a specified credit ratings downgrade by
Standard & Poor's and Moody's during the relief period (as set forth in the June
2020 Amendment), within 120 days thereafter (i) we would have been required to
cause each of our wholly owned United States subsidiaries (subject to certain
customary exceptions) to become a guarantor under the 2019 facilities and (ii)
we and each subsidiary guarantor would have been required to grant liens in
favor of the collateral agent on substantially all of our respective assets
(subject to customary exceptions). We terminated early, effective June 10, 2021 ,
this temporary relief period and, as a result, the various provisions in the
June 2020 Amendment described above are no longer in effect. Following the
termination of the relief period, we are now required to maintain a minimum
interest coverage ratio and a maximum net leverage ratio, calculated in the
manner set forth in the terms of the 2019 facilities. As of August 1, 2021 , we
were in compliance with all applicable financial and non-financial covenants
under these facilities.
We expect to maintain compliance with the financial covenants under the 2019
facilities based on our current forecasts. If the impacts of the COVID-19
pandemic on our business worsen and our earnings and operating cash flows do not
recover as currently estimated by us, there can be no assurance that we will be
able to maintain compliance with our financial covenants in the future. There
can be no assurance that we would be able to obtain future waivers in a timely
manner, on terms acceptable to us, or at all. If we were not able to maintain
compliance or obtain a future covenant waiver under the 2019 facilities, there
can be no assurance that we would be able to raise sufficient debt or equity
capital, or divest assets, to refinance or repay such facilities.
7 3/4% Debentures Due 2023
We have outstanding$100 million of debentures dueNovember 15, 2023 that accrue interest at the rate of 7 3/4%. The debentures are not redeemable at our option prior to maturity.
3 5/8% Euro Senior Notes Due 2024
We have outstanding €525 million principal amount of 3 5/8% senior notes dueJuly 15, 2024 , of which €175 million principal amount was issued onApril 24, 2020 . We paid €3 million ($3 million based on exchange rates in effect on the payment date) of fees in connection with the issuance of the additional €175 million notes. We may redeem some or all of these notes at any time prior toApril 15, 2024 by paying a "make whole" premium plus any accrued and unpaid interest. In addition, we may redeem some or all of these notes on or afterApril 15, 2024 at their principal amount plus any accrued and unpaid interest.
4 5/8% Senior Notes Due 2025
We have outstanding$500 million principal amount of 4 5/8% senior notes dueJuly 10, 2025 . We paid$6 million of fees in connection with theJuly 2020 issuance of the notes. We may redeem some or all of these notes at any time prior toJune 10, 2025 by paying a "make whole" premium plus any accrued and unpaid interest. In addition, we may redeem some or all of these notes on or afterJune 10, 2025 at their principal amount plus any accrued and unpaid interest.
3 1/8% Euro Senior Notes Due 2027
We have outstanding €600 million principal amount of 3 1/8% senior notes dueDecember 15, 2027 . We may redeem some or all of these notes at any time prior toSeptember 15, 2027 by paying a "make whole" premium plus any accrued and unpaid interest. In addition, we may redeem some or all of these notes on or afterSeptember 15, 2027 at their principal amount plus any accrued and unpaid interest. Our financing arrangements contain financial and non-financial covenants and customary events of default. As ofAugust 1, 2021 , we were in compliance with all applicable financial and non-financial covenants under our financing arrangements. As ofAugust 1, 2021 , our issuer credit was rated BBB- byStandard & Poor's with a stable outlook and our corporate credit was rated Baa3 by Moody's with a stable outlook, and our commercial paper was rated A-3 byStandard & Poor's and P-3 by Moody's. In assessing our credit strength, we believe that bothStandard & Poor's and Moody's considered, among other things, our capital structure and financial policies, our consolidated balance sheet, our historical acquisition activity and other financial information, as well as industry and other qualitative factors. 57 -------------------------------------------------------------------------------- Please see Note 10, "Debt," in the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report for a schedule of mandatory long-term debt repayments for the remainder of 2021 through 2026.
Please see Note 8, "Debt," in the Notes to Consolidated Financial Statements
included in Item 8 of our Annual Report on Form 10-K for the year ended
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Our significant accounting policies are outlined in Note 1, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year endedJanuary 31, 2021 . During the twenty-six weeks endedAugust 1, 2021 , there were no significant changes to our critical accounting policies from those described in our Annual Report on Form 10-K for the year endedJanuary 31, 2021 . 58
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