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PVH Corp. (PVH) Tops Q3 Earnings & Sales, Raises Outlook

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Keeping its positive earnings surprise trend alive for the tenth straight time, PVH Corporation (PVH - Free Report) posted yet another quarter of superb results in third-quarter fiscal 2016, wherein both earnings and sales topped estimates, encouraging management to raise its fiscal 2016 earnings outlook.

Apart from having a splendid earnings history, this Zacks Rank #2 (Buy) stock flaunts a robust price performance history, as it has soared 44% on a year-to-date basis, compared with the Zacks Categorized Textile-Apparel Manufacturing industry that slipped 6.5% over the same time frame.

Q3 Highlights

The company’s adjusted earnings per share of $2.60 not only significantly beat the Zacks Consensus Estimate of $2.41, but also exceeded its own guidance range of $2.35–$2.40. However, the bottom line dipped 2.3% year over year, owing to foreign currency headwinds and a tough macro environment.

PVH CORP Price, Consensus and EPS Surprise
 

PVH CORP Price, Consensus and EPS Surprise | PVH CORP Quote

On a GAAP basis, PVH Corp. reported earnings of $1.56 per share that slumped 41.6% from $2.67 earned in the year-ago quarter.

Quarter in Detail

PVH Corp.’s total revenue advanced 3.7% to $2,244.3 million, also surpassing the Zacks Consensus Estimate of $2,227 million. Further, top-line growth beat the company’s projection of 3% growth.

While revenue growth was mainly driven by continued strength noted in the Tommy Hilfiger and Calvin Klein brands, the performance was somewhat hurt by soft traffic and consumer spending trends at its Tommy Hilfiger and Calvin Klein U.S. outlet stores housed in international tourist locations.

Adjusted gross profit increased 7.8% year over year to $1,193.4 million, with the adjusted gross margin expanding 210 basis points, to 53.2%.

Segment Analysis

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

Calvin Klein’s revenue escalated 9% year over year to $891 million. On a currency neutral basis, it was up 10%, driven by a respective 6% and 17% currency-neutral revenue increase in the brand’s North American and International business.

North American operations gained strength from solid wholesale business growth. On the other hand, the brand’s retail sales remained flat as benefits from store expansions were offset by soft comparable-store sales (comps). Comps fell 5% year over year, on account of continued weak traffic and decreased consumer spending trends across the company’s U.S. stores in international tourist locations.

The brand’s international business’ comps jumped 7% on the back of continued strength in its European and Chinese operations.

Revenue at the company’s Tommy Hilfiger segment jumped 4% to $927 million, while it rose 6% on a constant currency basis, mainly backed by 18% constant-currency sales growth in the brand’s International business.

On the other hand, the brand’s North American revenue slid 7% on a constant currency basis, owing to an 11% plunge in comps. Comps tumbled due to persistent softness in traffic and consumer spending trends at its U.S. stores in international tourist locations. Also, comps were hampered by the shut down of PVH’S directly operated womenswear wholesale operations in the U.S. and Canada, as part of its licensing deal with G-III Apparel Group, Ltd. (GIII - Free Report) .

On the contrary, the brand’s international business continued to gain from strength in Europe and its Apr 2016 acquisition of the remaining 55% interest in TH China. Comps for the international business rose 10%.

The Heritage Brands segment’s revenues tanked 8% year over year to $426 million due to the ongoing rationalization of this business by exiting various lines of business. As part of this, the company shut down its Izod retail division and discontinued numerous licensed product lines in its dress furnishing business. These were, however, somewhat offset by a 6% jump in its Van Heusen comps.

Financials

The company ended the quarter with cash and cash equivalents of $662.4 million, long-term debt of $3,303.1 million, and shareholders’ equity of $4,794.3 million.

During the first three quarters of fiscal 2016, the company repurchased about 2.3 million shares for roughly $226 million of common stock under its Jun 2015 authorization of $500 million, extending over a three-year period.

Fiscal 2016 Guidance

PVH Corp.’s solid show even in the face of an uncertain macro environment keeps management impressed. However, going forward, the company remains cautious of adverse foreign currency movements, volatility in the macroeconomic and geopolitical environment.

Nonetheless, management raised its earnings guidance for fiscal 2016 as it remains confident about sailing through these headwinds and achieving its targets for fiscal 2016 on the back of the robust momentum in its premium Calvin Klein and Tommy Hilfiger brands.

Consequently, the company now envisions fiscal 2016 adjusted earnings per share in the range of $6.70−6.75, up from $6.55−$6.65 expected earlier. The latest guidance includes an expected $1.65 per share negative impact from currency headwinds.

However, the company retained its revenue projections for fiscal 2016, anticipating a 2% improvement year over year. On a currency neutral basis, revenue is still expected to grow about 3%.

Q4 Guidance

For fourth-quarter fiscal 2016, the company expects total revenue to dip 1% year over year, while it is anticipated to inch up 1%, on a constant-currency basis. Further, fourth quarter revenues are expected to bear the brunt of Mexico deconsolidation and the licensing agreement with G-III Apparel.

Adjusted earnings per share for the fourth quarter are expected to be in the range of $1.13–$1.18, including 23 cents per share negative impact from currency translations.

Other Stocks to Consider

Some other well-ranked stocks worth considering include The Children's Place, Inc. (PLCE - Free Report) , with a Zacks Rank #1 (Strong Buy) and Nordstrom Inc. (JWN - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Children's Place has an average positive earnings surprise of 36.3% in the trailing four quarters. The stock, with a long-term growth rate of 10.3%, has seen positive estimate revisions in the last 30 days.

Nordstrom’s long-term EPS growth rate of 9.7% and solid positive estimates revisions for the current fiscal over the past 30 days help it stand strong in the industry. Moreover, the company has delivered back-to-back earnings beat in the last two quarters.

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