PVH Corp (PVH) Stock Up on Q1 Earnings Beat & Raised View

Despite a challenging retail landscape, PVH Corporation PVH continued its superb run, as its first-quarter fiscal 2017 results marked the company’s third consecutive sales beat, with earnings keeping its positive surprise streak alive for the 12th straight time. This solid start to the fiscal also encouraged management to raise its outlook for fiscal 2017. Consequently, shares of the company jumped 3.6% in the after-market trading session.

Moreover, driven by a superb performance history, this Zacks Rank #2 (Buy) stock has outperformed the Zacks categorized Textile-Apparel Manufacturing industry in the last one year, with its shares gaining 9.1%, against the industry’s decline of 18.4%.

First-Quarter Highlights

Results in the first quarter continued to gain from solid momentum at the company’s premium Calvin Klein and Tommy Hilfiger brands, though it was partly hampered by a volatile macro environment and foreign currency headwinds.  

Coming to the numbers, the company’s adjusted earnings per share jumped 10% year over year to $1.65, beating the Zacks Consensus Estimate of $1.61 as well as exceeding its guidance range of $1.58–$1.60. However, as expected, currency hurt earnings per share by 11 cents in the quarter.

PVH Corp. Price, Consensus and EPS Surprise
 

PVH Corp. Price, Consensus and EPS Surprise | PVH Corp. Quote

On a GAAP basis, PVH Corp. reported earnings of 89 cents per share that plunged 68.6% from $2.83 earned in the year-ago quarter.

PVH Corp.’s total revenue grew 3.7% to $1,989 million and also surpassed the Zacks Consensus Estimate of $1,955.4 million. On a currency-neutral basis, revenues rose 5%.

Total gross profit increased 7.3% year over year to $1,080.8 million, with the gross margin expanding 180 basis points, to roughly 54.3%.

Adjusted EBIT ascended 2.1% to $192.5 million, including an adverse currency impact of about $12 million. The year-over-year growth was backed by improved Tommy Hilfiger earnings, somewhat negated by higher investments and marketing expenditure at Calvin Klein, and greater corporate expenses. The adjusted EBIT margin contracted 10 basis points to nearly 9.7%.

Segment Analysis

PVH Corp. reports its financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.

Calvin Klein’s revenues advanced 5% year over year to $756 million, including the impact from the deconsolidation of one of PVH’s subsidiaries (in Nov 2016) that operated and managed Calvin Klein’s business in Mexico. On a currency neutral basis, revenues jumped 6%, driven by 13% currency-neutral increase in the brand’s International revenues, partly offset by a 1% dip in its North American revenues.

The brand’s international business’ comparable-store sales (comps) grew 3%, while comps at the North American division fell 5%, as results were hampered by the aforementioned deconsolidation in Mexico.

Revenues at the company’s Tommy Hilfiger segment jumped 6% to $842 million, while it rose 9% on a constant currency basis, mainly backed by 19% constant-currency sales growth in the brand’s International business.

On the other hand, the brand’s North American revenues declined 5% on a constant currency basis owing to a 4% fall in comps. Further, revenues were largely hampered by the shut down of PVH Corp.’s directly operated womenswear wholesale operations in the U.S. and Canada, as part of its licensing deal with G-III Apparel Group, Ltd. GIII.

On the contrary, the brand’s international business continued to gain from strength in Europe and its Apr 2016 acquisition of the remaining 55% interest in TH China. Comps for the international business surged 14%.

The Heritage Brands segment’s revenues slipped 3% year over year to $391 million due to a planned change in shipment timings from the first to the second quarter. Nonetheless, comps remained flat year over year.

Financials

The company ended the quarter with cash and cash equivalents of $490.9 million, long-term debt of $3,157.1 million, and shareholders’ equity of $4,875.0 million.

During the quarter, the company repurchased about 0.6 million shares for roughly $60 million of common stock under its standing authorization, extending to Jun 3, 2020.

Guidance

The company’s solid show even in the face of an uncertain macro environment keeps management impressed. The splendid results reflect the strength of PVH Corp.’s diversified brand portfolio, and impressive trends at its international business. Management believes that the company’s superb execution, continued investments in brands and international platforms kept it going. Also, keeping pace with the evolving trends and undertaking necessary initiatives to stay afloat in the current business scenario helped PVH sustain its momentum.

However, going forward, the company remains cautious of adverse foreign currency movements, volatility in the macroeconomic and geopolitical environment. Despite these hurdles, management raised its fiscal 2017 outlook, reflecting confidence in its ongoing prospects. Also, it issued a fresh view for the second quarter of fiscal 2017.

For fiscal 2017, the company now projects revenues to rise 3% year over year, while currency neutral revenues are expected to grow 5%. Earlier, the company forecasted revenue growth of 2%, with currency neutral revenue anticipated to rise 4%. Management expects revenues to continue being dented by the licensing deal with G-III Apparel as well as the Mexico deconsolidation.

Brand wise, Calvin Klein revenues are anticipated to increase 6% (or 7% on a currency-neutral basis), revenues of Tommy Hilfiger are estimated to climb 2% (or 4% on a currency-neutral basis), and Heritage Brands is expected to remain flat year over year.

Further, management now envisions fiscal 2017 adjusted earnings per share in the range of $7.40– $7.50 compared with $7.30–$7.40 expected earlier. The latest outlook includes an expected 35 cents per share negative impact from currency headwinds. The guidance excludes pre-tax charges worth $124 million, which are anticipated to be incurred on various non-recurring transactions.

Q2 Guidance

For second-quarter fiscal 2017, the company expects total revenue to jump 5% year over year, while it is anticipated to advance 7%, on a constant-currency basis. Second-quarter revenues are also expected to bear the brunt of Mexico deconsolidation and the licensing agreement with G-III Apparel.

Adjusted earnings per share for the second quarter are expected to be $1.60–$1.63, including 7 cents per share negative impact from currency translations. Also, management expects to witness a $20 million escalation in total marketing costs in the quarter, primarily accountable to Calvin Klein.

The Zacks Consensus Estimate for the second quarter and fiscal 2017 is currently pegged at $1.53 and $7.41, respectively – thus signaling chances of upward revisions.

Other Stocks to Consider

Other top-ranked stocks in the same industry include Cherokee Inc. CHKE with a Zacks Rank #1 (Strong Buy) and Gildan Activewear Inc. GIL, carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cherokee has an average positive earnings surprise of 165.7% in the trailing four quarters. The stock also has a long-term growth rate of 15%.

Gildan Activewear, with long-term earnings per share growth rate of 12.3%, has delivered positive earnings surprise in the last two quarters.

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