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PVH Beats on EPS, Ups Guidance

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PVH Corporation (PVH - Free Report) reported an outstanding bottom-line performance in the second quarter of fiscal 2012, with adjusted earnings per share rising approximately 17% year over year to $1.25, beating its own guidance range of $1.18 - $1.20. The year-over-year increase in earnings per share was primarily driven by a lower effective tax rate. Moreover, it exceeded the Zacks Consensus Estimate of $1.19 per share.

On a reported basis, excluding certain items, the company’s earnings increased 29% to $1.19 per share from 92 cents earned in the year-ago quarter.

Quarter in detail

During the quarter, the company’s total revenue remains almost flat at $1,336.6 million compared with $1,334.4 million in the previous-year quarter. The year-over-year revenue growth at the company’s Tommy Hilfiger and Calvin Klein segments were offset by decline at its Heritage Brands segment and unfavorable foreign currency exchange rates. Moreover, quarterly revenue marginally missed the Zacks Consensus Estimate of $1,342 million.

PVH Corp.’s adjusted operating profit inched up 1.9% to $154.2 million from $151.4 million in the prior-year quarter. The year-over-year improvement in operating profit was primarily benefited from increased operating income at the company’s Tommy Hilfiger segment, which was partially offset by a decline in operating income at its Calvin Klein and Heritage Brands segments. Consequently, the company’s operating margin grew 20 basis points (bps) to 11.5% compared with 11.3% in the year-ago period.

Interest expenses declined 9.8% to $28.4 million from $31.4 million incurred during the second quarter of fiscal 2011, primarily due to lower long-term debt level. Further, during the second quarter, the company registered a drastic fall in its adjusted effective tax rate resulting from benefit of synergy coming from Tommy Hilfiger acquisition. The company’s adjusted effective tax rate came down to 26.9% from 34.7% in the prior-year quarter.

Segment analysis

Revenue at the company’s Tommy Hilfiger segment increased 4% to $721.9 million from $692.9 million in the previous-year period, primarily driven by an 11% and 15% increase in comparable sales in North America and European market, respectively. The segment was also benefited from a wholesale growth of 9% in Europe.

The segment’s adjusted operating profit grew 28% to $97.3 million from $75.8 million in the second quarter of fiscal 2011. The increased operating profit was a result of revenue growth and improved margins driven by higher average unit retail selling price per unit along with synergies coming from Tommy Hilfiger’s North American integration partially offset by weak results in Japan.

The company’s Calvin Klein segment’s revenue improved 5% to $251.2 million compared with $239.9 million in the year-ago quarter. The year-over-year increase in revenue was primarily driven by an increase of 5% in the comparable store sales in North America along with strong performance in fragrance, women’s sportswear, dresses, footwear and handbags. However, these benefits were partially offset by a decline of 10% in royalty revenue.

However, segment’s operating profit declined 8.9% to $60.2 million from $66.1 million as the benefits from higher revenue were more than offset by increased advertising expenses.

The company’s Heritage Brands segment posted a disappointing result with revenue falling 10% year over year to $363.5 million from $401.7 million in the second quarter of fiscal 2011, primarily due to a decline of 10% in wholesale business. Consequently, adjusted operating profit declined nearly 25% to $23.2 million from $30.9 million in the prior-year quarter.


PVH Corp. expects total revenue to increase in the range of 1% – 2% from the previous fiscal level of $5.891 billion. The company anticipates revenue at its Tommy Hilfiger and Calvin Klein segments to grow in the range of 2% - 3% and 6% - 7%, respectively, while its Heritage Brands segment’s revenue to decline in between 4% and 5%. Moreover, the company intends to reduce its debt level by approximately $300 million during fiscal 2012, which is expected to bring down its interest expenses by nearly 12 cents a share. The effective tax rate is assumed to be in between 23.5% and 24%.

On the basis of above assumptions and better-than-expected fiscal second quarter bottom-line performance, the company has raised its fiscal 2012 adjusted earnings guidance range. The company now anticipates adjusted earnings to be in the range of $6.25 to $6.32 per share, up from the previously guided range of $6.15 - $6.25.

For third quarter fiscal 2012, the company is projecting a decline of 2% - 3% in its total revenue. The company’s Tommy Hilfiger and Heritage Brands segments’ revenue are expected to decline in the range of 2% - 3% and 5% - 6%, respectively. Whereas, revenue at the company’s Calvin Klein segment is anticipated to increase by 4%. Further, the effective tax rate during the quarter is likely to remain between 23% and 23.5%.

On the basis of above assumptions, PVH Corp. expects adjusted earnings per share to be in the range of $2.20 - $2.25 in the third quarter of fiscal 2012 compared with the prior-year quarter’s earnings of $1.89 per share.

Zacks Rank

PVH Corp., which competes with Ralph Lauren Corporation (RL - Free Report) , currently has a Zacks #2 Rank, which translates to a short-term Buy rating.

PVH Corp., formerly known as Phillips-Van Heusen Corporation, is headquartered in New York, New York. PVH Corp. designs and markets branded dress shirts, neckwear, sportswear, footwear and other related products. The company markets its products at a wholesale level through department store chains and directly to consumers through retail stores. The company's portfolio of brands includes its owned brands and its licensed brands.

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