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PVH (PVH) Up 6.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for PVH (PVH - Free Report) . Shares have added about 6.5% in that time frame, outperforming the S&P 500.

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

PVH Corp Q3 Earnings & Revenues Surpass Estimates

PVH Corp reported better-than-expected third-quarter fiscal 2020 results. However, both top and bottom lines fell year over year. Continued adverse impacts of COVID-19 and the resurgence of cases, leading to temporary store closures in some parts of Europe and declining store traffic in North America, weighed on quarterly results to some extent. Nonetheless, strength in the international business, a solid e-commerce performance and rising demand for casual wear aided sales. Also, the company has witnessed a speedy recovery in Europe and China despite continued uncertainties related to the COVID-19 situation.

The company noted that its holiday season sale, including Singles’ Day in Asia as well as Black Friday in North America and Europe, performed well, particularly in the digital platform. Going ahead, management remains focused on investing in omni-channel capabilities, enhancing product offerings and undertaking cost cutting actions in a bid to stay afloat amid this crisis.

Q3 Highlights

PVH Corp reported adjusted earnings of $1.32 per share, plunging 57.4% from $3.1 reported in the year-ago quarter. However, the figure surpassed the Zacks Consensus Estimate of 24 cents per share. Although the bottom line gained from cost savings related to headcount reduction in North America as well as lower discretionary expenses and government subsidies, COVID-19 related costs to ensure the safety of customers and employees acted as a deterrent.

On a GAAP basis, the company delivered earnings of 98 cents, down 65.2% year over year from $2.82 reported in the year-ago quarter.

In the fiscal third quarter, revenues declined 18% year over year to $2,118 million but exceeded the Zacks Consensus Estimate of $1,974 million. Sluggishness in Tommy Hilfiger, Calvin Klein and Heritage Brands businesses weighed on the top line.

Also, direct-to-consumer revenues declined 11% year over year in the fiscal third quarter due to temporary store closures during the quarter in some parts of Europe due to resurgence in cases. Also, sluggish store traffic due to a lack of international tourists in North America remained a headwind. However, initial fourth-quarter to-date sales are showing signs of improvement on the back of Singles’ Day and Black Friday events. Further, the company’s digital sales advanced 36% year over year owing to strong online sales growth in all regions, even after the reopening of stores.

Moreover, wholesale revenues fell 22% in the fiscal third quarter due to recent bankruptcies of several customers and a dismal performance in North America.

The company’s total gross profit decreased nearly 21.7% to $1,101.3 million, while gross margin contracted 580 basis points to 52%. Further, adjusted SG&A expenses dropped 14% to $977.2 million in the quarter under review.

Adjusted earnings before interest and taxes were $132 million, down 53.2% from $282 million in the last-year quarter. The downside can be attributable to a dismal top line, stemming from COVID-19 impacts.

Segment Analysis

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

Revenues at Calvin Klein plunged 18% year over year with Calvin Klein North America declining 39% while Calvin Klein International remaining flat.

Revenues at the Tommy Hilfiger segment declined 12% year over year in the reported quarter. Further, Tommy Hilfiger North America fell 37% and Tommy Hilfiger International remained flat.

The Heritage Brands segment’s revenues fell 36% year over year during the quarter under review.

Financial Details

PVH Corp ended the fiscal third quarter with cash of approximately $1,460 million. Also, it boasts a revolving credit facility of $1.2 billion. Earlier, management suspended share repurchases and cash dividends due to COVID-19 impacts.

Looking Ahead

Management noted that COVID-19 woes will continue to hurt its fourth quarter revenues and earnings somewhat due to a resurgence in cases across Europe and North America. Notably, fourth-quarter revenues are expected to decline nearly 20% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.7% due to these changes.

VGM Scores

At this time, PVH has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 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 upward for the stock, and the magnitude of these revisions looks promising. 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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