PVH Corp. (PVH) Tops Q1 Earnings & Raises View; Stock Up

PVH Corporation PVH jumped 7.2% in the after-market trading session as the company raised its fiscal 2016 outlook on delivering splendid first-quarter results, wherein its bottom line surpassed estimates for the eighth consecutive quarter.

The company’s adjusted earnings per share of $1.50 not only beat the Zacks Consensus Estimate of $1.43, but also exceeded its own guidance range of $1.40–$1.45. However, the bottom line remained flat year over year, bearing the brunt of foreign currency headwinds to an extent of about 50 cents per share. On a currency neutral basis, adjusted earnings soared 33%.
 
On a GAAP basis, PVH Corp. reported earnings of $2.83 per share that improved considerably from $1.37 earned in the year-ago quarter.

Quarter in Detail

PVH Corp.’s total revenue advanced nearly 2% to $1,917.8 million, also exceeding the Zacks Consensus Estimate of $1,890 million and the company’s forecast of a 1% increase. On a constant currency basis, the company’s total revenue rose 3%, coming in line with management’s expectations.

Revenue growth was mainly driven by continued strength noted in the Tommy Hilfiger and Calvin Klein brands, particularly in the global markets. The company is especially pleased with the spectacular performance of these brands in the European and Chinese markets despite the prevalence of macroeconomic headwinds.

Adjusted gross profit rose 3.9% year over year to $1,008.0 million, with the adjusted gross margin expanding 100 basis points, to 52.6%.

Segment Analysis

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

Calvin Klein’s revenue escalated 11% year over year to $722.7 million, while on a currency neutral basis, it was up 13%, driven by a respective 14% and 13% increase in the brand’s North American and International business, on a currency neutral basis.

North American operations gained strength from solid wholesale business growth, which in turn was driven by robust performance across all businesses. In addition, the brand’s retail sales witnessed a modest upside as benefits from store expansions were partly offset by soft comparable-store sales (comps). Comps slid 4% year over year, on account of continued weak traffic and decreased spending trends across the company’s U.S. stores in international tourist locations.

The brand’s international business’ comps dropped 1% as strength in European and Chinese operations was more than offset by persistent softness in Brazil, Hong Kong and Korea.

Revenue at the company’s Tommy Hilfiger segment increased 3% to $791.8 million, while it rose 4% on a constant currency basis, backed by 11% sales growth in the brand’s International businesses, somewhat offset by a 5% decline in North American sales.

Tommy Hilfiger North America continued to see weakness in its retail operations. Consequently, comps in the brand’s North American business tumbled 10%, attributable to persistent slow traffic and a decline in spending trends among customers at stores in international tourist locations.

International revenues improved mainly on the back of solid European results, with comps increasing 8% year over year and solid wholesale business. Apart from this, sales also received contribution from the company’s latest buyout of the remaining 55% interest in TH Asia, which was concluded in Apr 2016.

The Heritage Brands segment’s revenues slumped 12% year over year to $403.3 million due to the ongoing rationalization of this business by exiting various lines of business, shutdown of the Izod retail division and discontinuation of various dress furnishing business operations. However, this decline was somewhat offset by a 12% jump in its Van Heusen comps.

Financials

The company ended the quarter with cash and cash equivalents of $365.1 million, long-term debt, excluding current maturities of $2,991.6 million, and shareholders’ equity of $4,862.3 million.

Also, during the quarter, the company repurchased about 0.6 million shares for roughly $51 million of common stock under its Jun 2015 authorization of $500 million, extending over a three-year period.

Fiscal 2016 Guidance

Though management is encouraged with PVH’s solid quarterly performance, it remains cautious of adverse foreign currency movements, volatility in global consumer spending and a tough promotional retail environment, going forward. Nonetheless, the company remains confident of its strategic endeavors, which encouraged management to raise its fiscal 2016 outlook.

Revenue for fiscal 2016 is now expected to rise 2% year over year, compared with a 1% jump expected earlier. On a currency neutral basis, revenue is still expected to grow 2%.

The company now envisions fiscal 2016 earnings per share in the range of $6.45−$6.55, up from $6.30–$6.50 expected earlier. The latest guidance includes an expected $1.55 per share negative impact from currency headwinds. Excluding this, however, the company anticipates adjusted earnings per share to increase 13%−15% from the fiscal 2015 level, compared with 12%–15% growth anticipated earlier.  

Free cash flow for fiscal 2016 is anticipated to be $500 million.

Q2 Guidance

For second-quarter fiscal 2016, the company expects total revenue to rise 4% year over year, while currency neutral revenue is anticipated to increase 5%.

Adjusted earnings per share for the second quarter are expected to be in the range of $1.25–$1.30, including a 45 cents negative impact from currency translations. On a currency neutral basis, adjusted earnings growth is expected in a band of 24%–28%.

Zacks Rank

PVH Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Delta Apparel Inc. DLA, with a Zacks Rank #1 (Strong Buy), Oxford Industries Inc. OXM and Perry Ellis International Inc. PERY, both carrying a Zacks Rank #2 (Buy).

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