Why Is PVH (PVH) Down 14.3% Since Last Earnings Report?

It has been about a month since the last earnings report for PVH (PVH). Shares have lost about 14.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PVH due for a breakout? 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 Q2 Earnings Top Estimates, Dip Y/Y on Inflation

PVH Corp posted second-quarter fiscal 2022 results, wherein the bottom line surpassed the Zacks Consensus Estimate, while sales missed the same. Both metrics declined year over year.

Despite the ongoing macroeconomic challenges, continued momentum in its core brands — Calvin Klein and Tommy Hilfiger — remained upsides. However, the North America unit was drab due to supply-chain issues.

That said, management remains on track with its PVH+ Plan, which aims at product strength and consumer engagement, direct-to-consumer, digital enhancement and improving its supply-chain capabilities, which are likely to result in substantial cost efficiencies and better productivity.

In sync with its plans, PVH intends to reduce 10% of its workforce in its global offices by the end of 2023. The move will generate savings of more than $100 million, which will then be reinvested in digital, supply chain and consumer engagement related to the PVH+ Plan.

In a recent development, the company announced the departure of its existing chief executive officer, Trish Donnelly. For the time being, Stefan Larsson will act as its interim CEO.

Q2 Highlights

PVH Corp reported adjusted earnings of $2.08 per share, down 23.5% from the year-ago quarter's $2.72. However, the bottom line beat the Zacks Consensus Estimate of $2.01. On a GAAP basis, the company reported earnings of $1.72 per share, reflecting a decline of 31.5% from $2.51 in the prior-year quarter.

In the fiscal second quarter, revenues fell 8% year over year to $2,132 million. The top line also lagged the Zacks Consensus Estimate of $2,226 million. This can be attributable to strength in international businesses, particularly in Europe and Asia.

On the flip side, the exit from the Heritage Brands Retail business and the impacts of the Ukraine war, including the shutdown of stores in Russia, the cessation of wholesale shipments to Russia and Belarus, and reduced wholesale shipments to Ukraine, remained concerns. Supply-chain headwinds in North America acted as another deterrent.

Direct-to-consumer revenues fell 5% year over year in the quarter, while Wholesale revenues plunged 11%. Revenues in the digital channel declined roughly 7% in the quarter under review.

The company's gross profit amounted to $1,118.6 million, down 10% year over year. The gross margin contracted 50 bps to 57.2%, including unfavorable currency impacts of 40 bps.

Adjusted selling, general and administrative expenses decreased 2.6% year over year to $1,019.9 million. Adjusted earnings before interest and taxes totaled $211.4 million compared with $293.9 million in the prior-year quarter. This mainly resulted from reduced expenses in the prior-year period due to store closures in certain regions. The metric also included $29 million of adverse foreign currency impacts.

Segmental Analysis

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

Revenues from the Calvin Klein segment inched down 1% year over year. Sales from Calvin Klein North America fell 1% and Calvin Klein International decreased 2%.

Revenues from the Tommy Hilfiger segment declined 5% year over year in the reported quarter. Revenues were up 6% at Tommy Hilfiger North America, while the metric declined 9% at Tommy Hilfiger International.

The Heritage Brands segment's revenues plunged 44% year over year in the quarter under review.

Financial Details

PVH Corp ended the quarter with cash and cash equivalents of $699.3 million, long-term debt of $2,155.5 million, and stockholders' equity of $5,206.4 million. The company also bought back $124 million of shares under its existing $3-billion share repurchase program in the quarter under review.

Outlook

Management lowered its fiscal 2022 outlook and issued the fiscal third-quarter view. The updated guidance reflects impacts of lower demand due to inflation and reduced discretionary expenses, along with higher promotions due to higher inventory. Also, unfavorably currency impacts, along with an uncertain macroeconomic environment, including supply-chain and logistics disruptions, inflationary pressures, the Ukraine war, and the COVID-19 pandemic impacts, remain concerning.

For fiscal 2022, revenues are anticipated to decrease 3-4% year over year (up 3-4% on a cc basis), down from the earlier mentioned 1-2% increase. This is inclusive of a 2% reduction each for the exit of the Heritage Brands Retail business and the war in Ukraine.

The bottom line is expected to be $8.00 for the year, down from the $9.20 per share mentioned earlier. Notably, the company reported $10.15 on a non-GAAP basis in the prior year. The fiscal 2022 operating margin is likely to be 9%, down from the earlier mentioned 10%.

For third-quarter fiscal 2022, management expects a 4-5% year-over-year revenue decline. This is inclusive of a 2% decline from the war in Ukraine. The bottom line is likely to be $2.10-$2.15. Notably, the company reported $3.89 and $2.67 on a GAAP and non-GAAP basis, respectively, in the year-ago quarter. This includes unfavorable currency impacts of 35 cents, as well as 18 cents of adverse impacts of the Ukraine war.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -27.02% due to these changes.

VGM Scores

At this time, PVH has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PVH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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