Question-and-Answer Session
Unidentified Analyst
Can you speak to what trends you’re seeing in your sourcing costs generally and cotton specifically?
Joseph R. Gromek
Well, I think we’re operating across a multitude of business categories but basically we’re seeing stress on the costing side. We think 08 we’re pretty well covered. In 09 we’re beginning to feel real pressure so we’ve got to work smarter and different to be able to maintain our margin structure. Over the last three, four, five years we’ve made great progress on our gross margins. If we look back to 2003 we had a 27% gross margin and I think today it’s about 42% so we’ve made tremendous progress there. But, we had a lot of low laying fruit, that low laying fruit is gone. We’re doing things internally in terms of our systems, PVM in terms of on the design side to impact the amount of SKUs that we develop etcetera. So we have initiatives in place but candidly the pricing is becoming more challenging. One other factor, we’ve got another great asset and that is the brand that we’re backing today and that’s Calvin Klein and I think if anywhere there was some pricing elasticity it would be within the Calvin Klein product lines.
Analyst Todd
Joe, I know brand cycles aren’t exactly an exact science but by giving us five year projections what is your view on the brand cycle for Calvin Klein? Do you think it’s just going to be long or do you think it’s going to be relatively bullet proof?
Joseph R. Gromek
Well, I think Calvin Klein in September, I don’t want to steal anybody’s thunder here but I think there’s a major plan for anniversary and I believe it’s the 40th anniversary, 40 years of Calvin Klein. I think as long as the brand is not mismanaged and hopefully you’ve seen this morning what our teams has been able to provide to you in terms of design. We’re as good as the product we create so as long as we continue to be on our game in designing the product, in marketing it in the appropriate fashion and providing the consumer something they really want, this brand can go on a long, long time. Brands that falter typically falter because they’ve been mismanaged, that’s not something that we intend to do.
Analyst Todd
Actually, let me ask this question or pose it to Larry, you provided goals of 11% revenue growth and 20% EPS growth annually and I’m just wondering if you look at 2008 is there any reason why on sort of a lower base year this year should be below those targets?
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