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PVH to Focus on High-Margin Biz

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In a series of recent events, PVH Corp. (PVH - Free Report) has made it clear that it will concentrate on higher-margin businesses, led by the Calvin Klein and Tommy Hilfiger brands, rather than lower-margin products to drive long-term growth and enhance shareholder value.

To achieve this, on Oct 2, PVH Corp. entered into an agreement with G-III Apparel Group, Ltd. (GIII - Free Report) to sell all the assets of its G.H. Bass & Co. division. The transaction, which will expectedly be complete at the beginning of fourth-quarter fiscal 2013, will garner nearly $50 million of cash to PVH Corp.

Founded in 1876, G.H. Bass & Co. is an iconic footwear brand that was acquired by PVH Corp. in 1987 from Unilever plc (UL - Free Report) for $79 million. The segment has been an important contributor to PVH Corp.’s growth. However, the company now feels that its lifestyle apparel business has significant growth potential as well.

PVH Corp., which competes with Ralph Lauren Corp. (RL - Free Report) , intends to utilize the net proceeds to make additional debt prepayments. Moreover, the transaction is expected to dilute the company’s 2013 earnings per share.

Despite expectations of an earnings dilution due to this deal, PVH Corp. reiterated its full-year 2013 earnings guidance of $7.00 per share. However, the company raised its third-quarter earnings per share outlook to $2.25 from its earlier forecast of $2.20.

Going ahead with its strategy, last week, the company formed a joint venture (JV) with Gazal Corporation Limited – a leading apparel supplier and retailer in Australasia – to expand PVH Corp.’s Calvin Klein brand across Australia, New Zealand and the South Pacific nations and islands.

The newly formed JV has been named as PVH Brands Australia Pty. Limited and it will operate, manage and distribute Calvin Klein products across the aforementioned nations. The JV is expected to commence its operations on Feb 3, 2014 and will have a 20-year licensing period.

Furthermore, on Oct 7, Calvin Klein appointed Frank Cancelloni as the President of Calvin Klein Asia Pacific. Cancelloni will take over his new post on Dec 4, 2013.

In his role as the President of Calvin Klein’s Asian operations, Cancelloni will oversee execution of the company’s worldwide initiatives for the brand, operations and licensing with an aim to further boost growth in the region.

He will be responsible for formulating business policies in the Asia-Pacific region, focusing on further strengthening its well-known operations as well as increasing the company’s market share and reach in these high-growth markets. Based in the company’s headquarters in Hong Kong, Cancelloni will report to Steve Shiffman, President & Chief Commercial Officer of Calvin Klein.

We believe that PVH Corp. is moving in the right direction, which will help it to exploit opportunities in the lifestyle apparel market.

Currently, PVH Corp. carries a Zacks Rank #3 (Hold).

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