PVH Corp’s (PVH Quick QuotePVH - Free Report) performance has been impressive since the beginning of this year, evident from the 20.4% increase in its share price. The company has been gaining from the momentum in its core brands — Calvin Klein and Tommy Hilfiger. Strength in the international business bodes well.

Year to date, this Zacks Rank #3 (Hold) stock has outperformed the industry’s 1.4% growth and the S&P 500’s rally of 16.9%.

Let’s delve into the factors aiding this stock for a while now.

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What’s Driving PVH?

PVH Corp's Tommy Hilfiger and Calvin Klein brands continued to perform well in first-quarter fiscal 2023, driven by robust consumer demand. Tommy Hilfiger’s quarterly revenues were up 5%, whereas Calvin Klein’s revenues were flat year over year.

Calvin Klein witnessed a record-breaking consumer engagement, driven by the most impactful version of the Calvins or nothing campaign. This campaign generated 1.7 billion impressions across PR and social media, leading to the expansion of its social following, with 1.6 million new followers. Owing to this, the brand witnessed a significant rise in traffic in owned and operated e-commerce sites.

In another development, Calvin announced popular K Pop Star, Jungkook, as the brand ambassador, leading to a more than 39% increase in site visits across all regions and a visible lift in sales.

The brand also launched Jennie for Calvin Klein — a unique limited edition capsule collection designed in partnership with Jennie Kim of Blackpink. The collection, which is Jennie's personal take on hero products and style essentials in denim, underwear and other key categories, generated nearly 700 million social media impressions, along with key products that sold-out within two days of release.

Coming to Tommy, the brand continues to drive strong visibility and relevance among consumers, generating 5.5 billion impressions and 56 million social engagements globally in the quarter. Its Classics Reborn spring campaign has been performing well. Its collaboration with Shawn Mendes continued to show momentum. The brand also revealed plans to partner with Disney as part of the latter’s 100th milestone anniversary.

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.

PVH Corp’s international business has been witnessing growth for quite some time now. The company witnessed continued momentum in the international unit in the fiscal first quarter.

Notably, the international unit’s revenues jumped 9% year over year on a constant-currency (cc) basis, driven by product strength and solid consumer engagement, particularly in Asia. Going ahead, management expects the international business to drive growth.

This led to the solid first-quarter fiscal 2023 results, wherein the bottom and top lines surpassed the Zacks Consensus Estimate and grew year over year. Adjusted earnings were $2.14 per share, up 10% from the year-ago quarter’s $1.94.

Revenues rose 2% year over year (up 5% on a cc basis) to $2,158 million, mainly driven by the solid performance in its international businesses, particularly in the Asia Pacific region, continued growth in Europe and the North America direct-to-consumer business.

Driven by these factors, fiscal 2023 revenues are anticipated to grow 3-4% (up 2-3% on a cc basis). This is in sync with our estimate. The bottom line is expected to be $10 per share for the year, whereas it reported $3.03 on a GAAP basis and $8.97 on an adjusted basis last year. The view includes a positive impact of 15 cents from favorable currency.

Further, the gross margin is likely to expand 100 bps year over year, driven by a favorable shift in the channel and regional mix stemming from its higher-margin DTC business as part of the PVH+ Plan and lower freight costs due to recovered supply-chain conditions. The operating margin is estimated to be 10%, whereas EBITDA is forecast to grow in the high-single digits.

PVH Corp’s multi-year strategy, PVH+ Plan, aims to accelerate growth by boosting its core strengths, and connecting Calvin Klein and TOMMY HILFIGER brands with 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.

The company expects to strengthen its presence in the global demand spaces, 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 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. This model will put consumers first, leveraging data to offer fresh products.

The company also focuses on boosting efficiencies to be cost-competitive and, in turn, reinvest in strategic plans. In sync with its plans, PVH 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 be reinvested in digital, supply-chain and consumer engagement related to the PVH+ Plan.

In a recent development, PVH Corp announced the extension of its license agreements with G-III Apparel Group from 2025 to 2027 as part of the PVH+ plan. 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.

Headwinds to Overcome

PVH Corp has been reeling under the ongoing macroeconomic challenges. High raw material costs and currency headwinds hurt its margins in first-quarter fiscal 2023. The gross margin contracted 50 bps to 57.9% due to higher product costs, the negative impact of foreign exchange and abnormally high raw material costs. Selling, general and administrative expenses increased 2.4% year over year to $1,064 million.

Earnings before interest and taxes totaled $199 million compared with $210 million in the prior-year quarter and our estimate of $252 million. This is mainly due to lower gross margins stemming from inventory costs. The metric also included $9 million of adverse foreign currency impacts.

For fiscal 2023, management expects SG&A expenses as a percentage of revenues to expand 70 basis points year over year due to expenses related to investments in the DTC and international businesses.

Also, the company’s second-quarter fiscal 2023 guidance seems dull due to global inflationary pressures. It expects revenue growth in the low-single digits on both reported and cc basis. The bottom line is likely to be $1.70, whereas it reported $1.72 in the year-ago quarter on a GAAP basis and $2.08 on an adjusted basis.

Conclusion

Although inflation-led high costs remain near-term headwinds, we believe that strength in core brands and the international unit, as well as gains from the PVH+ Plan, are likely to help the stock sustain its momentum. Notably, a Value Score of B and a long-term earnings growth rate of 15.8% raise optimism in the stock.

Stocks to Consider

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Bluegreen Vacations sports a Zacks Rank #1 (Strong Buy) at present. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BVH’s 2023 sales and EPS indicates increases of 3.6% and 17.6%, respectively, from the year-ago reported levels.  

Royal Caribbean sports a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 26.4%, on average.

The Zacks Consensus Estimate for RCL’s 2023 sales and EPS implies increases of 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.

lululemon athletica is a yoga-inspired athletic apparel company. LULU carries a Zacks Rank of 2 (Buy) at present.

The Zacks Consensus Estimate for lululemon athletica’s current financial-year sales and EPS suggests growth of 16.7% and 18%, respectively, from the year-ago reported figures. LULU has a trailing four-quarter earnings surprise of 9.9%, on average.