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PVH Corp (PVH) Banks On Brand Strength Amid Cost Headwinds
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PVH Corp (PVH - Free Report) appears to be a lucrative pick with solid growth prospects. The company has been in investors’ good books, owing to strength across Calvin Klein and Tommy Hilfiger, as well as the international business. Its PVH+ plan bodes well.
This led to the impressive third-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Consequently, this Zacks Rank #2 (Buy) stock has gained 47.8% in the past three months, outperforming the industry’s growth of 4.9%.
That said, let’s delve deeper into the factors that are aiding PVH.
Image Source: Zacks Investment Research
Factors Narrating PVH’s Growth Story
PVH Corp's diversified brand portfolio and continued momentum in its core brands, Calvin Klein and Tommy Hilfiger, make it well-placed for long-term growth. The company's Tommy Hilfiger and Calvin Klein brands continued to perform well in third-quarter fiscal 2022, driven by robust consumer demand.
On a cc basis, Tommy Hilfiger revenues rose 7%, while Calvin Klein revenues grew 9% in the quarter. The Tommy Hilfiger brand gained from a strong product assortment, a partnership with Shawn Mendes, a recent fashion show at New York Fashion Week and a multi-verse Tommy Factory Runway experience, which launched its Tommy Hilfiger Monogram collection.
Calvin Klein has been witnessing strong consumer engagement. It recently launched its platform CK.com in North America, which offers faster site speed and strong product imagery. 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.
The company's international business continued to deliver strong results in the third quarter of fiscal 2022, both on a year-over-year and pre-pandemic basis. The international unit’s revenues jumped 7% year over year on a cc basis, driven by product strength, solid consumer engagement amid the challenging environment in Europe, and COVID-19 restrictions in China. The region witnessed gains across markets in Europe, with the region exceeding $1 billion in sales in the quarter for the first time. Going ahead, management expects the international business to drive growth.
It remains on track with its multi-year PVH+ Plan to drive sustainable growth. The plan mainly aims at accelerating growth by boosting its core strengths, and connecting the Calvin Klein and TOMMY HILFIGER brands with the consumers through five major drivers. These 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.
PVH focuses on boosting efficiencies to be cost-competitive and, in turn, reinvest in strategic plans. In sync with its plans, the company remains on track to reduce 10% of its workforce in its global offices by the end of 2023. The move is likely to generate savings of more than $100 million, which will then be reinvested in digital, supply chain and consumer engagement related to the PVH+ Plan.
In a recent development, as part of the PVH+ plan, PVH Corp announced the extension of its license agreements with G-III Apparel Group from 2025 to 2027. The deal will enable the smooth transition of core product categories back to PVH at the end of the extended terms. The transaction mainly includes Calvin Klein and Tommy Hilfiger brands in the United States and Canada, particularly the women’s North American wholesale business.
Management shared certain financial goals, which are to be achieved through the solid execution of the PVH+ Plan. It anticipates witnessing a high-single-digit CAGR rate from 2021 to $12.5 billion in revenues in 2025. Revenue drivers are balanced global growth from Calvin Klein and TOMMY HILFIGER; high-single-digit CAGR in Europe and the Americas; mid-teens CAGR in the Asia Pacific; 20% or more CAGR across digital platforms; and direct-to-consumer brick & mortar exceeding wholesale brick & mortar.
PVH Corp expects its operating margin to grow to 15%, while the free cash flow is likely to be more than $1 billion in 2025.
Hurdles on the Way
PVH Corp has been reeling under ongoing macroeconomic challenges, including the impacts of the Russia-Ukraine war, such as Russia store closures, the cessation of wholesale shipments to Russia and Belarus, and a reduction in wholesale shipments to Ukraine. This, along with COVID-led impacts in Asia, led to a sluggish year-over-year performance in the fiscal third quarter.
Adjusted earnings of $2.60 per share fell 2.6% year over year in the fiscal third quarter. On a GAAP basis, the company reported a loss of $2.88 per share against earnings of $3.89 in the prior-year quarter. Revenues declined 2% year over year (up 7% on a cc basis) to $2,281 million.
Higher costs and increased promotions also dented margins in the fiscal third quarter. The gross margin contracted 180 bps to 55.9%. Adjusted earnings before interest and taxes totaled $220 million compared with $266 million in the prior-year quarter.
For fiscal 2022, revenues are anticipated to be at the higher end of the earlier mentioned year-over-year decrease of 3-4% (up 3-4% on a cc basis). 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 $8.25 for the year, up from the $8.00 per share mentioned earlier. However, the company reported $10.15 last year.
For fourth-quarter fiscal 2022, management expects a 4% year-over-year revenue decline. This is inclusive of a 2% decline from the war in Ukraine. The bottom line is likely to be 45 cents on a GAAP basis and $1.65 on an adjusted basis. Notably, the company reported $3.89 and $2.67 on a GAAP and non-GAAP basis, respectively, in the year-ago quarter. This includes unfavorable currency impacts of 27 cents, as well as 15 cents of adverse impacts of the Ukraine war.
Bottom Line
Although the impacts of geopolitical conflict and high costs are near-term headwinds, we believe that strength in core brands and the international unit, and gains from the PVH+ Plan will help the stock sustain its momentum. A long-term earnings growth rate of 10.2% raise optimism in the stock. PVH’s earnings estimates for fiscal 2022 have moved up 4.3% in the past 30 days.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates increases of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates improvements of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently carries a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates increases of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.
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PVH Corp (PVH) Banks On Brand Strength Amid Cost Headwinds
PVH Corp (PVH - Free Report) appears to be a lucrative pick with solid growth prospects. The company has been in investors’ good books, owing to strength across Calvin Klein and Tommy Hilfiger, as well as the international business. Its PVH+ plan bodes well.
This led to the impressive third-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Consequently, this Zacks Rank #2 (Buy) stock has gained 47.8% in the past three months, outperforming the industry’s growth of 4.9%.
That said, let’s delve deeper into the factors that are aiding PVH.
Image Source: Zacks Investment Research
Factors Narrating PVH’s Growth Story
PVH Corp's diversified brand portfolio and continued momentum in its core brands, Calvin Klein and Tommy Hilfiger, make it well-placed for long-term growth. The company's Tommy Hilfiger and Calvin Klein brands continued to perform well in third-quarter fiscal 2022, driven by robust consumer demand.
On a cc basis, Tommy Hilfiger revenues rose 7%, while Calvin Klein revenues grew 9% in the quarter. The Tommy Hilfiger brand gained from a strong product assortment, a partnership with Shawn Mendes, a recent fashion show at New York Fashion Week and a multi-verse Tommy Factory Runway experience, which launched its Tommy Hilfiger Monogram collection.
Calvin Klein has been witnessing strong consumer engagement. It recently launched its platform CK.com in North America, which offers faster site speed and strong product imagery. 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.
The company's international business continued to deliver strong results in the third quarter of fiscal 2022, both on a year-over-year and pre-pandemic basis. The international unit’s revenues jumped 7% year over year on a cc basis, driven by product strength, solid consumer engagement amid the challenging environment in Europe, and COVID-19 restrictions in China. The region witnessed gains across markets in Europe, with the region exceeding $1 billion in sales in the quarter for the first time. Going ahead, management expects the international business to drive growth.
It remains on track with its multi-year PVH+ Plan to drive sustainable growth. The plan mainly aims at accelerating growth by boosting its core strengths, and connecting the Calvin Klein and TOMMY HILFIGER brands with the consumers through five major drivers. These 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.
PVH focuses on boosting efficiencies to be cost-competitive and, in turn, reinvest in strategic plans. In sync with its plans, the company remains on track to reduce 10% of its workforce in its global offices by the end of 2023. The move is likely to generate savings of more than $100 million, which will then be reinvested in digital, supply chain and consumer engagement related to the PVH+ Plan.
In a recent development, as part of the PVH+ plan, PVH Corp announced the extension of its license agreements with G-III Apparel Group from 2025 to 2027. The deal will enable the smooth transition of core product categories back to PVH at the end of the extended terms. The transaction mainly includes Calvin Klein and Tommy Hilfiger brands in the United States and Canada, particularly the women’s North American wholesale business.
Management shared certain financial goals, which are to be achieved through the solid execution of the PVH+ Plan. It anticipates witnessing a high-single-digit CAGR rate from 2021 to $12.5 billion in revenues in 2025. Revenue drivers are balanced global growth from Calvin Klein and TOMMY HILFIGER; high-single-digit CAGR in Europe and the Americas; mid-teens CAGR in the Asia Pacific; 20% or more CAGR across digital platforms; and direct-to-consumer brick & mortar exceeding wholesale brick & mortar.
PVH Corp expects its operating margin to grow to 15%, while the free cash flow is likely to be more than $1 billion in 2025.
Hurdles on the Way
PVH Corp has been reeling under ongoing macroeconomic challenges, including the impacts of the Russia-Ukraine war, such as Russia store closures, the cessation of wholesale shipments to Russia and Belarus, and a reduction in wholesale shipments to Ukraine. This, along with COVID-led impacts in Asia, led to a sluggish year-over-year performance in the fiscal third quarter.
Adjusted earnings of $2.60 per share fell 2.6% year over year in the fiscal third quarter. On a GAAP basis, the company reported a loss of $2.88 per share against earnings of $3.89 in the prior-year quarter. Revenues declined 2% year over year (up 7% on a cc basis) to $2,281 million.
Higher costs and increased promotions also dented margins in the fiscal third quarter. The gross margin contracted 180 bps to 55.9%. Adjusted earnings before interest and taxes totaled $220 million compared with $266 million in the prior-year quarter.
For fiscal 2022, revenues are anticipated to be at the higher end of the earlier mentioned year-over-year decrease of 3-4% (up 3-4% on a cc basis). 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 $8.25 for the year, up from the $8.00 per share mentioned earlier. However, the company reported $10.15 last year.
For fourth-quarter fiscal 2022, management expects a 4% year-over-year revenue decline. This is inclusive of a 2% decline from the war in Ukraine. The bottom line is likely to be 45 cents on a GAAP basis and $1.65 on an adjusted basis. Notably, the company reported $3.89 and $2.67 on a GAAP and non-GAAP basis, respectively, in the year-ago quarter. This includes unfavorable currency impacts of 27 cents, as well as 15 cents of adverse impacts of the Ukraine war.
Bottom Line
Although the impacts of geopolitical conflict and high costs are near-term headwinds, we believe that strength in core brands and the international unit, and gains from the PVH+ Plan will help the stock sustain its momentum. A long-term earnings growth rate of 10.2% raise optimism in the stock. PVH’s earnings estimates for fiscal 2022 have moved up 4.3% in the past 30 days.
Other Stocks to Consider
Some other top-ranked stocks in the Zacks Consumer Discretionary sector are Hilton Grand Vacations (HGV - Free Report) , RCI Hospitality Holdings (RICK - Free Report) and Hyatt Hotels (H - Free Report) .
Hilton Grand Vacations currently sports a Zacks Rank #1 (Strong Buy). HGV has a trailing four-quarter earnings surprise of 3.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for HGV’s 2023 sales and earnings per share (EPS) indicates increases of 4.7% and 24.6%, respectively, from the year-ago period’s reported levels.
RCI Hospitality currently has a Zacks Rank #2 (Buy). RICK has a trailing four-quarter earnings surprise of 6.1%, on average.
The Zacks Consensus Estimate for RICK’s 2023 sales and EPS indicates improvements of 12.7% and 10.6%, respectively, from the year-ago period’s reported levels.
Hyatt currently carries a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average.
The Zacks Consensus Estimate for H’s 2023 sales and EPS indicates increases of 7.4% and 136.6%, respectively, from the year-ago period’s reported levels.