Why Is PVH Corp (PVH) Up 2% Since the Last Earnings Report?

It has been about a month since the last earnings report for PVH Corp. PVH. Shares have added about 2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

PVH Corp Q1 Earnings & Sales Beat, Outlook Raised

PVH Corporation posted first-quarter fiscal 2017 results, wherein the company’s adjusted earnings per share jumped 10% year over year to $1.65, beating the Zacks Consensus Estimate of $1.61, and also exceeding its own guidance range of $1.58–$1.60. However, as expected, currency hurt earnings per share by $0.11 in the quarter.

On a GAAP basis, PVH Corp. reported earnings of $0.89 per share that slumped 68.6% from $2.83 earned in the year-ago quarter.

PVH Corp.’s total revenue remained advanced 3.7% to $1,989 million, also surpassing 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 at its North American revenue.

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.

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 till Jun 3, 2020.

Guidance

PVH Corp.’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 Corp. 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 $0.35 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 $0.07 per share negative impact from currency translations. Also, management expects witnessing a $20 million escalation in total marketing costs in the quarter, primarily accountable to Calvin Klein.

How Have Estimates Been Moving Since Then?

There has been one upward revision in the last seven days.

PVH Corp. Price and Consensus

 

PVH Corp. Price and Consensus | PVH Corp. Quote

VGM Scores

At this time, PVH Corp.'s stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value and growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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