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Brand Strength & Solid Online Show to Aid PVH Corp (PVH)

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PVH Corp PVH has been gaining from brand strength, particularly in Calvin Klein and Tommy Hilfiger, along with robust e-commerce growth and improved store traffic. Sturdy performances across all regions and channels have been drivers. The positive momentum in the international unit also bodes well.

That said, let’s delve deeper into the aspects that are driving the stock.

Growth Factors

PVH Corp has been witnessing an impressive performance in the digital platform, owing to the persistent online demand. Investments in omni-channel capabilities and improved inventory bode well. As a result, revenues in digital channels rose 35% year over year in the quarter under review, accounting for nearly 25% of total revenues. Europe acted as a major growth driver. The company is on track with the expansion of the direct-to-consumer digital business and strengthening its network with third-party digital partners. Management earlier envisioned online sales to represent 20% of total sales over the next few years.

Similarly, other companies gaining from the sustained online show include lululemon athletica LULU, Steve Madden SHOO and Crocs CROX. Lululemon’s digital revenues increased 66% on a two-year CAGR basis in second-quarter fiscal 2021. Crocs delivered 25% year-over-year growth in digital sales in second-quarter 2021, marking the 17th successive quarter of double-digit growth. Steven Madden’s e-commerce revenues surged 105% year over year in the second quarter of 2021.

Coming back to PVH, it remains poised for long-term growth on solid performances in Tommy Hilfiger and Calvin Klein brands. The company continues to witness double-digit growth in both Tommy Hilfiger and Calvin Klein brands as compared with second-quarter fiscal 2019. Product strength across all brands and regions, particularly in Europe, pricing power, and gross margin expansion contributed to quarterly growth. Clavin Klein earlier collaborated with Heron Preston to launch its first global product, which aims at reinventing essentials. Tommy Hilfiger also collaborated with Stevie Gee to introduce the third installment of Tommy's DROP SHOP, which offers limited-edition hoodies and tees.

Its international business, which returned to growth in the first quarter of fiscal 2021, witnessed momentum in the fiscal second quarter, driven by a solid performance in Europe. Revenues for the business grew significantly from second-quarter fiscal 2019. For the rest of the year, the international business is likely to witness higher revenues.

Driven by the factors, management raised its fiscal 2021 view. For 2021, revenues are anticipated to grow 26-28% year over year (up 24-26% on a cc basis), which reflects an improvement from the earlier mentioned 24-26% growth (indicating a 21-23% rise at cc). Adjusted earnings are now expected to be $8.50 per share compared with the previously stated earnings of $6.50. The figure suggests a rise from an adjusted loss of $1.97 reported in 2020.

The gross margin is envisioned to improve for the remaining part of the year, backed by less promotional selling and a favorable shift in regional sales mix.  For third-quarter fiscal 2021, management expects year-over-year revenue growth of 11-13% (up 29-31% on a cc basis). Adjusted earnings are likely to be $1.95-$2.00 per share, suggesting a rise from $1.32 reported in the prior-year quarter.

Hurdles on the Way

The company continues to witness rising costs due to increased online shipments along with industry-wide supply-chain challenges. Management expects elevated freight and other logistic costs in the second half of fiscal 2021 from the first half. It also foresees $60 million of pre-tax costs related to restructuring actions, including lowering headcount in a few international markets, and reducing real estate footprint, comprising certain store closures and reduced office space.

It is also likely to incur $21 million of costs in fiscal 2021 associated with the exit from the Heritage Brands Retail business. Alongside these, PVH Corp continues to expect uncertainty related to COVID-19 to hurt earnings and revenues in the second half of fiscal 2021.


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