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PVH (PVH) Up 54.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for PVH (PVH - Free Report) . Shares have added about 54.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is PVH due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

PVH Corp Earnings & Sales Surpass Estimates in Q4

PVH Corp continued with its earnings beat trend, delivering better-than-expected results in fourth-quarter fiscal 2019. Both the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year.

Going forward, the company expects results for the first quarter and fiscal 2020 to include significant impacts from the coronavirus outbreak. Based on the uncertainties and the unprecedented impacts of the situation on its operations, PVH Corp has withheld its guidance for fiscal 2020.

The company stated that its operations in first-quarter fiscal 2020 will likely be impacted by virus-related concerns, reduced travel, temporary store closures and government-imposed restrictions. The actions have led to a significant reduction in traffic and consumer spending trend as well as a slowdown in sales at its retail stores in nearly all key markets. Additionally, the company’s wholesale customers and licensing partners are witnessing similar trends. Further, PVH Corp and its licensing partners are witnessing supply-chain disruptions, which are expected to mount up in the future due to the closure of factories or operations with a limited workforce.

However, the company is confident of navigating the situation on its strong financial position, with over $1 billion in cash and available borrowings. It ended 2019 with cash of $503 million and a 7% decline in inventory levels.

Further, the company has undertaken a few steps to maintain financial flexibility during the current turbulent times. It has drawn $750 million from its more than $1-billion revolving credit facility to improve cash position, while also maintaining untapped capital through its credit facility. PVH Corp has also temporarily suspended its share repurchase program and dividend payouts beginning the second quarter of fiscal 2020.

The company currently has $600 million remaining under its current share repurchase authorization, following repurchases worth $325 million in fiscal 2019 and $110 million in first-quarter fiscal 2020.

Moreover, PVH Corp is reviewing every opportunity to reduce discretionary operating expenses. It has also lowered its capital expenditure target to $190 million for fiscal 2020, whereas it incurred $345 million in fiscal 2019.

Q4 Highlights

PVH Corp’s adjusted earnings of $1.88 per share grew 2.2% year over year and surpassed the Zacks Consensus Estimate of $1.80. The metric also outshined the company’s guidance of $1.77-$1.79.

On a GAAP basis, the company delivered a loss per share of 93 cents against earnings per share of $2.09 registered in the year-ago quarter. The bottom line, both on adjusted and GAAP basis, included an adverse impact of 5 cents per share from foreign currency translations.

In the fiscal fourth quarter, revenues rose 5% to $2,600.8 million and outpaced the Zacks Consensus Estimate of $2,481 million. On a constant-currency (cc) basis, revenues improved 6%. The upside was primarily backed by growth at Tommy Hilfiger, offset by revenue declines at Calvin Klein and Heritage Brands.

The company’s total gross profit rose 3.1% to $1,397.9 million, while gross margin contracted 90 basis points to 53.7%. Moreover, adjusted EBIT decreased 22.3% to $150 million, driven by earnings declines across all businesses. This included the negative impacts of incremental inventory reserves in the fourth quarter of fiscal 2019 in anticipation of lower sales trends due to the COIVID-19 outbreak.

Segment Analysis

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

Revenues at Calvin Klein declined 2% year over year to $936 million (down 1% at cc). The segment’s International revenues grew 6% to $554 million (up 8% at cc). International revenues benefited from growth in Europe and incremental revenues from the acquisition of nearly 78% interest in Gazal Corporation Limited that it did not own previously (referred as Australia acquisition), offset by softness in Asia due to disruptions in Hong Kong. International comparable-store sales (comps) rose 1%. The segment’s North America revenues declined 11% to $382 million mainly due to soft wholesale business. In North America, comps improved 4%.

Revenues at the Tommy Hilfiger segment improved 12% to $1.3 billion (up 13% at cc). International revenues at the segment increased 20% to $865 million (up 22% at cc). The improvement was mainly backed by a stellar performance in Europe and gains from the aforementioned Australia acquisition as well as comps growth of 10%. Also, the buyout of Tommy Hilfiger retail business in Central and Southeast Asia from the company’s prior licensee in the market (the TH CSAP acquisition) aided growth. However, the segment’s North America revenues fell 2% to $440 million as growth at North America’s wholesale business was more than offset by a 6% comps decline due to soft traffic and lower consumer spending trends.

The Heritage Brands segment’s revenues fell 1% year over year at $359 million. The decline was mainly owing to softness in North America’s wholesale business and flat comps.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -127.14% due to these changes.

VGM Scores

Currently, PVH has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise PVH has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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