It has been about a month since the last earnings report for PVH (PVH - Free Report) . Shares have lost about 15.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is PVH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
PVH Corp Beats on Q3 Earnings, Ups FY18 View
PVH Corp reported mixed results in third-quarter fiscal 2018, wherein earnings beat estimates while sales missed. However, both top and bottom lines improved year over year. While the company’s earnings beat estimates for the 18th straight time, sales lagged after eight positive surprises. Further, management issued guidance for the fourth quarter and raised earnings view for fiscal 2018.
PVH Corp’s adjusted earnings per share were $3.21, reflecting growth of 6.3% year over year. The bottom line also surpassed the Zacks Consensus Estimate of $3.14 and exceeded the company’s guided range of $3.10-$3.13.
On a GAAP basis, the company’s earnings of $3.15 per share increased 3.3% from $1.52 registered in the year-ago quarter and came above its guidance of $3.03-$3.06.
Total revenues advanced 7% to $2,524.5 million but marginally fell short of the Zacks Consensus Estimate of $2,528 million. On a constant-currency basis, the top line improved 9%. Top-line growth stemmed from broad-based strength across the company’s global businesses with continued momentum at Tommy Hilfiger. Further, Calvin Klein witnessed robust performance in many of its product categories. However, softness was observed across its Calvin Klein 205 W39 NYC halo business.
PVH Corp’s total gross profit increased 5.2% year over year to $1,364.8 million in the quarter under review, while gross margin contracted 430 basis points (bps) to 54.1%. Adjusted EBIT was down 2.1% to $288.6 million with the adjusted EBIT margin contraction of 110 bps to nearly 11.4%.
PVH Corp reports financial results under three business segments— Calvin Klein, Tommy Hilfiger and Heritage Brands.
Revenues at Calvin Klein grew 2% year over year to $963 million and increased 4% in constant currency. The segment’s International sales rose 3% to $482 million and 7% on a constant-currency basis. Growth in International business was driven by strength in Europe and 1% rise in international comparable store sales (comps). The segment’s North America sales were up 1% to $481 million, primarily on account of growth at the wholesale business. This was partly negated by a decline of 2% in comps.
Revenues at the Tommy Hilfiger segment jumped 11% to $1.1 billion and improved 13% in constant currency. The segment’s International revenues increased 16% to $708 million while it rose 19% in constant currency. This improvement was driven by a stellar performance in all regions and channels, and comps growth of 13%. Additionally, the company’s North America business witnessed revenue growth of 3% to $424 million, on the back of robust improvement in wholesale business offset by flat comps.
The Heritage Brands segment’s revenues grew 8% year over year to $429 million. This was backed by robust wholesale business performance, somewhat negated by comps decline of 1%.
In the nine months of fiscal 2018, the company bought back roughly 1.7 million shares for $247 million under its $1.25-billion standing authorization through Jun 3, 2020. Since its inception, the company has repurchased nearly 8.5 million shares for $939 million under the program.
Following the impressive quarterly results, management raised earnings guidance for fiscal 2018. Further, the company issued outlook for the fiscal fourth quarter.
For fiscal 2018, the company projects revenues to increase 7% on both reported and constant-currency basis. Earlier, PVH Corp estimated sales to grow 7%, and 6% in constant currency. Brand-wise, sales are anticipated to increase roughly 7% on both reported and currency-neutral basis at Calvin Klein and 10% (or 9% on a currency-neutral basis) at Tommy Hilfiger. At its Heritage Brands, the company expects sales to grow roughly 2% year over year.
Net interest expenses are still expected to decline to roughly $117 million in fiscal 2018 from $122 million last year. Further, the effective tax rate for the fiscal year is projected to be 13-14%, including the anticipated impact of the tax legislation, compared with prior guidance of 13.5-14.5%.
Management envisions adjusted earnings per share of $9.33-$9.35 for fiscal 2018, up from the $9.20-$9.25 range guided previously. The guidance reflects a sharp increase from $7.94 earned in fiscal 2017.
GAAP earnings per share are now projected to be $9.10-$9.12 compared with $8.96-$9.01 estimated earlier. Earnings projections include gain of roughly 3 cents per share from foreign currency translations, both on GAAP and non-GAAP basis.
For fourth-quarter fiscal 2018, the company expects total revenues to decrease nearly 4% year over year and 1% in constant currency. Brand-wise, revenues are expected to decline 6% (or 3% on a currency-neutral basis) at Calvin Klein, 4% (or flat in constant currency) at Tommy Hilfiger and 2% at Heritage Brands.
Revenues in the fiscal fourth quarter are expected to be hurt due to the 53rd week in fiscal 2017. Management anticipates the top line to be adversely impacted by roughly $125 million, which includes $80 million on account of reduction of 53rd week in the fiscal fourth quarter and $45 million owing to the fiscal calendar misalignment in 2018 versus last year.
Net interest expenses are anticipated to decline to roughly $30 million in the fiscal fourth quarter. The effective tax rate for the quarter is anticipated in the 13-19% range.
Adjusted earnings per share are expected to be $1.58-$1.60, compared with $1.58 recorded in the year-ago quarter. Earnings per share exclude roughly $4 million of pre-tax expenses associated with the TH China acquisition.
On a GAAP basis, the company envisions earnings per share of $1.54-$1.56 compared with $1.39 in the prior-year quarter. Both GAAP and adjusted earnings guidance include an anticipated adverse impact of nearly 11 cents per share from foreign currency.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, PVH has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, PVH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.