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Can Brand Strength Aid PVH Corp (PVH) Amid Inflation Woes?

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PVH Corp (PVH - Free Report) is currently witnessing uncertainty related to the Ukraine war, macroeconomic challenges, inflationary pressure and the pandemic. Also, higher freight and logistics costs remain concerning.

The company’s North America unit has been performing poorly for a while now. Despite the increased focus on streamlining the North American business, the unit remained well below the pre-pandemic levels due to a lack of international tourism, which is not expected to return to growth in fiscal 2022. This, along with the ongoing supply-chain pressures and logistic delays, is expected to continue to hurt the North America business throughout fiscal 2022.

As a result, management slashed its fiscal 2022 guidance. For fiscal 2022, revenues are anticipated to increase 1-2% year over year (up 6-7% on a cc basis), down from the earlier mentioned 2-3%. 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 $9.20 per share, down from the prior year’s reported figure of $13.25 and $10.15 on a GAAP and non-GAAP basis, respectively.

For second-quarter fiscal 2022, management expects a year-over-year revenue decline of 4-3%. This is inclusive of a 4% reduction for the exit of the Heritage Brands Retail business and a 2% decline stemming from the war in Ukraine. The bottom line is likely to be $2.20 per share on a GAAP basis and $2.00 on a non-GAAP basis. Notably, it reported $2.51 and $2.72 on a GAAP and non-GAAP basis, respectively, in the year-ago quarter.

Consequently, shares of PVH Corp have plunged 42.2% year to date compared with the industry’s decline of 36.4%.

 

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Image Source: Zacks Investment Research

 

Brighter Side of the Story

Despite the downsides, management is looking into every nook and cranny for growth prospects. The company notes that the continued momentum in its core brands — Calvin Klein and Tommy Hilfiger — and strength in the international business bode well.

PVH Corp's international business witnessed growth in the first quarter of fiscal 2022, both on a year-over-year and a two-year basis, respectively. Notably, the international unit’s revenues jumped 8% year over year on a cc basis. The region witnessed gains across all markets, except for Greater China, which was affected by COVID-led shutdowns. Going ahead, management expects international business to drive growth.

The company’s Tommy Hilfiger and Calvin Klein brands continued to perform well in first-quarter fiscal 2022, driven by robust consumer demand. Calvin Klein launched its spring collection in the quarter and the all-together campaign, featuring an international cast, including Jennie Kim, and Euphoria star Dominic Fike.

The Tommy Hilfiger brand benefitted from a solid performance in its global Tommy Jeans AAPE by A Bathing Ape collaboration, along with a higher sell-through rate and AURs. The brand also ventured into the metaverse via a partnership with the online game platform Roblox. Going forward, management remains confident about the underlying power of Calvin Klein and Tommy Hilfiger brands, which position the company's business to succeed amid the ever-changing consumer landscape.

This Zacks Rank #3 (Hold) company’s newly launched PVH+ plan mainly aims at accelerating growth via boosting its core strengths, and connecting Calvin Klein and TOMMY HILFIGER brands with consumers through five major drivers. The drivers are — win with product; win with consumer engagement; win in the digitally-led marketplace; develop a demand- and data-driven operating model; and drive efficiencies and invest in growth. The company expects to strengthen its presence in the global demand space, wherein its iconic labels resonate well with consumers.

Management reinforces the Calvin Klein and Tommy Hilfiger brands so that these can cater to consumers’ needs in new and engaging ways. PVH Corp is focused on fueling digital growth by developing a holistic distribution strategy for Calvin Klein and TOMMY HILFIGER, driven by digital and direct-to-consumer channels and wholesale partnerships. It looks to develop a demand- and data-driven operating model with a systematic and repeatable product creation model.

The model will put the consumer first, leveraging data to offer fresh products. Also, PVH focuses on boosting efficiencies to be cost-competitive and, in turn, reinvesting in strategic plans.

Conclusion

Although rising inflation and freight woes are expected to persist this year, we believe that strength in core brands and the international unit, as well as gains from the PVH+ Plan, will help the stock get back on track. Notably, a VGM Score of B and a long-term earnings growth rate of 9% raise optimism in the stock. Also, PVH Corp’s earnings estimates for fiscal 2022 have moved up 0.4% in the past 30 days.

Other Stocks to Consider

Some better-ranked stocks from the same industry are Delta Apparel (DLA - Free Report) , Steven Madden (SHOO - Free Report) and GIII Apparel Group (GIII - Free Report) .

Steven Madden is involved in designing, sourcing, marketing and selling private label footwear, handbags and accessories for women, men, and children. It currently flaunts a Zacks Rank #1 (Strong Buy). SHOO has a trailing four-quarter earnings surprise of 44%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Steven Madden’s current financial year’s sales and earnings suggests growth of 15.2% and 19.6%, respectively, from the year-ago period's reported numbers.

Delta Apparel, a manufacturer of knitwear products, currently sports a Zacks Rank #1. DLA has a trailing four-quarter earnings surprise of 95.5%, on average.

The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and earnings per share suggests growth of 11.9% and 10.1%, respectively, from the year-ago period's reported numbers.

GIII Apparel, a manufacturer, designer and distributor of apparel and accessories, presently has a Zacks Rank #2 (Buy). GIL has a trailing four-quarter earnings surprise of 160.6%, on average.

The Zacks Consensus Estimate for GIII Apparel’s current financial-year sales and earnings suggests growth of 8.7% and 5.2% from the year-ago period’s reported numbers, respectively.