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PVH Corporation (PVH - Analyst Report) has beaten expectations yet again. The company posted better-than-expected quarterly results, with adjusted earnings per share for first-quarter fiscal 2013 rising 43.6% year over year to $1.91, thereby beating its own guidance of $1.33 and the Zacks Consensus Estimate of $1.37. The upside was primarily driven by strong revenue growth resulting from the acquisition of The Warnaco Group, Inc. and improved margins.

However, including one-time items, the company posted a loss of 25 cents per share compared with earnings of $1.30 reported in the comparable year-ago period.

Quarter in detail

During the quarter, total revenue of the company (including the impact of $30.0 million of sales returns related to certain Warnaco wholesale customers) jumped 33.8% to $1,910.2 million compared with $1,427.4 million in the year-ago quarter. The year-over-year surge in revenues was attributable to robust sales performances across all segments of the company.  However, quarterly revenues fell short of the Zacks Consensus Estimate of $1,951.0 million. Excluding the effect of sales returns, total adjusted revenue came at $1,940.2 million.

PVH Corp.’s adjusted operating profit surged 51.4% to $241.3 million from $159.4 million in the year-ago comparable quarter. The company’s operating margin grew 120 basis points (bps) to 12.4% compared with 11.2% in the year-ago period. The year-over-year rise in operating profit was primarily driven by positive impact of the Warnaco acquisition and improved operating results in all the segments of the company.

Segment analysis

From the first quarter onwards, PVH Corp. has decided to report its financial results under 3 business segments­ – a) Calvin Klein which includes Calvin Klein North America and Calvin Klein International segments, b) Tommy Hilfiger comprising Tommy Hilfiger North America and Tommy Hilfiger International businesses, and c) Heritage Brands consisting of Heritage Brands Wholesale and Heritage Brands Retail segments.

Calvin Klein’s revenues jumped more than twofold to $607.9 million from $262.1 million in the year-ago quarter. This year-over-year increase in revenues came on the back of the Warnaco acquisition and a 4% rise in comparable-store sales (comps) at PVH Corp.’s Calvin Klein North America retail business. However, comps at the company’s Calvin Klein International segment fell 5%.

The segment’s adjusted operating profit surged 81.5% to $105.8 million from $58.3 million primarily driven by the Warnaco acquisition, strong sales at the Calvin Klein’s North America segment and an improved gross profit.

Revenues at the company’s Tommy Hilfiger segment increased 5.3% to $811.4 million from $770.4 million in the year-ago period, due to 14% growth in North American business. The segment’s North American business mainly benefited from a 5% rise in retail comps, square footage expansion and robust wholesale revenues.

The segment’s adjusted operating profit grew 15% to $118.2 million from $102.7 million in the first quarter of fiscal 2012. The increased operating profit was a result of revenue growth and improved margins driven by higher average unit retail selling price per unit.

The company’s Heritage Brands segment’s revenues increased 24.3% year over year to $490.9 million, up from $394.9 million in first-quarter fiscal 2012. The increase was primarily driven by the Warnaco acquisition, partially offset by 7% negative impact due to the company’s exit from Izod and Timberland businesses. Adjusted operating profit jumped over twofold to $39.1 million, up from $17.6 million in the prior-year quarter – driven by higher gross profit from the inclusion of Warnaco business and PVH Corp.’s exit from the lower margin carrying businesses of Izod and Timberland.

Outlook

PVH Corp. continues to expect fiscal 2013 total revenue to be $8.2 billion. The company’s Calvin Klein, Tommy Hilfiger and Heritage Brands are anticipated to contribute $2.75 billion, $3.40 billion and $2.05 billion, respectively toward its total revenue. Moreover, the company still expects fiscal-2013 adjusted earnings to come in at $7.00 per share. Currently, the Zacks Consensus Estimate stands at $7.02 per share.

PVH Corp. intends to repay about $400 million of its debt and projects a total interest expense of nearly $200 million in fiscal 2013. Tax rate is likely to be in the range of 25.5%–26.5%.

For second-quarter fiscal 2013, the company anticipates total revenue of $1.9 billion with Calvin Klein, Tommy Hilfiger and Heritage Brands contributing approximately $625 million, $775 million and $500 million, respectively.

During the quarter, the company is anticipating interest expense of nearly $50 million and tax rate in the range of 30%–31%.

Based on the above-mentioned assumption, PVH Corp. expects second-quarter fiscal 2013 adjusted earnings to come in at approximately $1.35 per share. Currently, the Zacks Consensus Estimate stands at $1.36 per share.

Other Stocks to Consider

Currently, PVH Corp. carries a Zacks Rank #4 (Sell). Better performing stocks in the apparel retail industry include G-III Apparel Group, Ltd. (GIII - Snapshot Report), Joe’s Jeans Inc. (JOEZ - Snapshot Report) and Michael Kors Holdings Ltd. (KORS - Analyst Report), all of which have a Zacks Rank #2 (Buy).

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