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PVH Corp (PVH) Q3 Earnings & Sales Top, Raises FY17 View

Zacks

PVH Corporation PVH delivered better-than-expected earnings and sales results for third-quarter fiscal 2017. While this marked the company’s fifth straight sales beat, earnings topped estimates for the 14th consecutive quarter. Results continued to benefit from solid momentum at the company’s premium Calvin Klein and Tommy Hilfiger brands. Further, the company raised earnings outlook for fiscal 2017.

However, shares of the company dropped 2.9% in the after-market trading session yesterday. Nonetheless, this Zacks Rank #3 (Hold) company has grown 9.1% in the last three months, outperforming the industry’s upside of 6.3%.



Q3 Highlights

The company posted third-quarter adjusted earnings per share of $3.02, up 16.2% year over year. Earnings also considerably surpassed the Zacks Consensus Estimate of $2.91 and outperformed its own guidance range of $2.88-$2.92. However, currency hurt earnings by 3 cents per share 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 $3.05 per share, up 95.5% from $1.56 earned in the year-ago quarter.

PVH Corp.’s total revenues advanced 5% to $2,357 million and topped the Zacks Consensus Estimate of $2,329 million. Moreover, revenues improved 3% on a constant-currency basis.

Adjusted gross profit increased 8.7% year over year to $1,297.3 million, with the gross margin expanding 180 basis points (bps), to roughly 55%.

Adjusted EBIT grew 6.9% to $294.7 million, driven by improved Tommy Hilfiger earnings, somewhat negated by timing shift of wholesale shipments at Heritage Brands, an earnings decline in Calvin Klein due to higher marketing expenditures and increased corporate expenses. The adjusted EBIT margin expanded 20 bps to nearly 12.5%.

Segment Analysis

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

Calvin Klein’s revenues advanced 6% year over year to $943 million, including about $20 million impact from the deconsolidation of the company’s business in Mexico in November 2016. The growth was driven by a 20% increase in the segment’s International revenues, partially offset by a 5% decline in revenues for the North America business.

Growth in International business was backed by solid performance of wholesale business in Europe, alongside robust growth in the retail business due to 9% comparable store sales (comps) increase and square-footage expansion. Meanwhile, revenues for the North America business was primarily hurt by the deconsolidation of the Mexico business as well as 1% decline in comps. In constant currency, revenue for the segment improved 4%.

Revenues at the company’s Tommy Hilfiger segment jumped 10% to $1 billion, while it improved 7% in constant currency. Growth can primarily be attributed to 16% sales improvement in the brand’s International business, owing to persistent strength in Europe and Asia, and 7% comps growth.

Additionally, the company’s North America business witnessed 2% revenue growth (1% growth in constant currency) driven by 6% increase in comps. This was partly offset by nearly $20 million reduction due to the discontinuation of its directly-operated womenswear wholesale business in the United States and Canada in fourth-quarter fiscal 2016 in connection with the licensing of this business to G-III Apparel Group, Ltd. (GIII).

The Heritage Brands segment’s revenues dipped 7% year over year to $396 million due to a planned change in Wholesale shipment timings from the third quarter to the second quarter. However, comps improved 2%.

Financials

The company ended the quarter with cash and cash equivalents of $612.3 million, long-term debt of $3,182.7 million, and shareholders’ equity of $5,249.8 million.

In the first nine months of fiscal 2017, the company repurchased about 1.8 million shares for roughly $192 million under its $1.25 billion standing authorization that extends till Jun 3, 2020.

Guidance

Driven by the solid third-quarter results, improvement in foreign currency rates and continued strength across its brands, PVH Corp anticipates delivering a robust revenues and earnings in fourth-quarter 2017. This favorable view further backed by the strong start to the holiday season and the additional $20 million increase in marketing expenditures to take advantage of the continued momentum across its businesses. Further, the company raised guidance for fiscal 2017 on the aforementioned favorable trends.

For fiscal 2017, the company now projects revenues to rise 7% year over year, while constant-currency revenues are expected to grow 6%. Earlier, the company forecasted revenue growth of 6%, with constant-currency revenues improving 5%. Management expects revenues to continue being dented by the licensing deal with G-III Apparel and a $150 million reduction due to the Mexico deconsolidation.

Brand-wise, revenues are anticipated to increase 9% (or 7% on a currency-neutral basis) for Calvin Klein and 8% (or 7% on a currency-neutral basis) for Tommy Hilfiger. Earlier, the company had projected revenue growth of 8% for Calvin Klein (7% on a currency-neutral basis) and 6% for Tommy Hilfiger (5% on currency-neutral basis). However, the company continues to expect revenues for Heritage Brands to be flat year over year.

Management now envisions fiscal 2017 adjusted earnings per share in the range of $7.78-$7.80, compared with $7.60-$7.70 expected earlier. The latest outlook includes an expected 17 cents per share negative impact from currency headwinds. The guidance also includes an additional $20 million marketing expenditures for Calvin Klein in the fourth quarter. On a GAAP basis, the company projects fiscal 2017 earnings per share in the range of $6.80-$6.82 compared with previous guidance of $6.44-$6.54.

Q4 Guidance

For fourth-quarter fiscal 2017, the company expects total revenues to jump 11% year over year, while it is anticipated to advance 8% on a constant-currency basis. While fourth-quarter revenues will be positively impacted by the inclusion of the 53rd week, it will bear the brunt of Mexico deconsolidation, the G-III Apparel licensing, and a shift in the selling period in advance of the Chinese New Year, which now occurs in first-quarter fiscal 2018.

Brand-wise, revenues are expected to jump 16% (or 12% on a currency-neutral basis) at Calvin Klein, and 12% (or 7% on a currency-neutral basis) at Tommy Hilfiger, while revenues for Heritage Brands are expected to decline nearly 1%.

Adjusted earnings per share for the fiscal fourth quarter are expected to be $1.42-$1.44, including 2 cents per share positive impact from foreign currency translations. On a GAAP basis, the company envisions earnings per share of $1.35-$1.37.

Stocks to Consider

Better-ranked stocks in the same industry include Ralph Lauren Corp. RL, sporting a Zacks Rank #1 (Strong Buy), Michael Kors Holdings Limited KORS and Guess?, Inc. GES, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren has gained 7.7% in the last three months. Moreover, it has a long-term earnings growth rate of 15%.

Michael Kors has a long-term EPS growth rate of 7.5%. Further, the stock has returned 38.9% in three months.

Guess? has grown nearly 7.6% in the last three months. Moreover, it has a long-term earnings growth rate of 17.5%.

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