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PVH Stock Down 16% in 3 Months: Can It Reverse the Trend?

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PVH Corp’s (PVH - Free Report) efforts to resonate well with the evolving consumer trends and efficient brand management initiatives appear impressive. Moreover, the company continues to witness solid momentum at its Tommy Hilfiger brand. Notably, it boasts a robust surprise trend, having outpaced earnings estimates for the 18th straight quarter when it reported third-quarter fiscal 2018 results.

However, shares of PVH Corp have lost 16.2% in the past three months, wider than the industry’s 9.2% decline.



Softness across its Calvin Klein business in the recently reported quarter weighed on sales, which has hurt sentiments. Notably, the top line lagged estimates in the fiscal third quarter, after eight positive surprises.

While Calvin Klein’s revenues edged up 2%, the brand’s EBIT fell 15% year over year. Calvin Klein’s comparable-store sales (comps) also declined 2%. Weakness across the brand’s 205 W39 NYC halo business and issues related to its Jeans business due to fashion miss negatively impacted results. Though management is striving to address these headwinds, it expects to see improvements in fiscal 2019.  Consequently, Calvin Klein’s revenues are expected to decline 6% (or 3% on a currency-neutral basis) in the fourth quarter of fiscal 2018.

Additionally, management has issued dismal total revenues guidance for the fiscal fourth quarter. PVH Corp expects total revenues to decrease nearly 4% year over year and 1% at constant currency against improvement of 19% and 13% (at constant currency) in the year-ago period. In fact, the quarterly revenues are likely to be hurt by roughly $125 million due to reduction of 53rd week and calendar misalignment in fiscal 2018.

Brand-wise, revenues are expected to decline 4% (or flat at constant currency) at Tommy Hilfiger and 2% at Heritage Brands. In fourth-quarter fiscal 2017, PVH Corp registered revenue growth of 23% at Calvin Klein and 22% at Tommy Hilfiger, while the metric was flat at Heritage Brands. Volatile geopolitical environment, stiff competition and tariff-related woes are added concerns.

Can PVH Corp Bounce Back?

While softness in the top line is a daunting concern, PVH Corp looks poised to gain from its efforts to revive its Heritage Brands segment, as well as strength in digital and international operations. Further, a raised earnings outlook for fiscal 2018 drives optimism.

PVH Corp has also been enriching its digital experiences. In October this year, management announced that Wirecard — a global digital financial services provider — rolled out the ‘Try Before You Buy’ payment choice in collaboration with PVH’s European headquarters. This enables online customers to pay within 30 days after the delivery of their ordered products, making it convenient for them to try styles and other attributes. These innovative and modern technologies enhance customers’ shopping experience, and are expected to drive the company’s top line and overall profitability.

Furthermore, the company’s international business remains sturdy owing to solid performance in Europe and Asia. Tommy Hilfiger, PVH Corp’s premium brand, is continuously putting up a stellar show, as the brand’s revenues grew 11% in the fiscal third quarter. Also, Tommy Hilfiger’s International revenues recorded a growth of 16%, driven by a stellar performance in all regions and channels, and comps growth of 13%. Its North America business also witnessed revenue growth of 3%.

Additionally, PVH Corp has been extending the reach and distribution of Heritage Brands as evident from launch of an integrated e-commerce site for the brand. It announced the launch of IZOD premium brand in Europe, across Spain, Germany, the Netherlands and Scandinavia in fall. Management plans to expand the brand’s distribution in Europe, Russia and the Middle East regions in spring next year.

Coming to guidance, PVH Corp envisions adjusted earnings per share of $9.33-$9.35 for fiscal 2018, up from the $9.20-$9.25 range guided previously. This also reflects a sharp increase from $7.94 earned in fiscal 2017. Though management issued bleak revenues outlook for the fiscal fourth quarter, adjusted earnings per share are anticipated to be $1.58-$1.60 compared with $1.58 recorded in the year-ago quarter.

Despite the odds, we expect the afore-mentioned factors to boost PVH Corp’s performance, with the stock picking momentum in months to come. Presently, PVH Corp carries a Zacks Rank #3 (Hold).

Some Better-Ranked Textile – Apparel Stocks

Crocs, Inc. (CROX - Free Report) has an expected long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ralph Lauren Corporation (RL - Free Report) outpaced the earnings estimates in each of the trailing four quarters, the average beat being 7%. Further, the company carries a Zacks Rank #2 (Buy).

lululemon athletica inc. (LULU - Free Report) is also a Zacks Ranked #2 stock, which has an impressive long-term earnings growth rate of 19.2%.

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