PVH Corp (PVH) Maintains Earnings Streak in Q4; Stock Up
Despite a challenging retail landscape, PVH Corporation PVH posted better-than-expected earnings and sales results for fourth-quarter fiscal 2016. While sales marked its second consecutive beat, earnings kept its positive surprise streak alive for the 11th straight time.
Results continued to gain from solid momentum at the company’s premium Calvin Klein and Tommy Hilfiger brands, though it was partly hampered by a volatile macro environment, intense promotional activities and foreign currency headwinds.
Shares of the company jumped 7.2% in the after-market trading session following the results. Moreover, the company has outperformed the Zacks categorized Textile-Apparel Manufacturing industry in the last one year. While PVH slipped 3.5% in the last one year, it fares much better than the industry’s downside of 24.2%.
Q4 Highlights
The company’s adjusted earnings per share of $1.23 beat the Zacks Consensus Estimate by a penny, and also exceeded its guidance range of $1.13–$1.18. However, as expected, currency hurt earnings per share by 23 cents in the quarter. Further, this Zacks Rank #4 (Sell) company’s bottom line plunged 19.1% year over year owing to increased marketing costs and investments, particularly at the Calvin Klein business.
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 $1.26 per share that slumped 22.7% from $1.63 earned in the year-ago quarter.
PVH Corp.’s total revenue remained nearly flat at $2,107.7 million, while it surpassed the Zacks Consensus Estimate of $2,091 million. On a currency-neutral basis, revenues climbed 1%.
Total gross profit increased 6.1% year over year to $1,138 million, with the adjusted gross margin expanding 70 basis points, to roughly 54%.
Adjusted EBIT declined 19.7% to $147 million, including an adverse currency impact of about $21 million. Consequently, the adjusted EBIT margin contracted 170 basis points to nearly 7%.
Segment Analysis
PVH Corp. reports its financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.
Calvin Klein’s revenues dipped 1% year over year to $795 million, partly attributable to the deconsolidation of one of PVH’s subsidiaries (in Nov 2016) that operated and managed Calvin Klein’s business in Mexico. However, on a currency neutral basis, it remained flat, as a 14% currency-neutral increase in the brand’s International revenues were offset by an 11% drop at its North American revenue.
The brand’s international business’ comparable-store sales (comps) jumped 6% on the back of continued strength in its European and Chinese operations. Comps at the North American division fell 2%, as results were hampered by the aforementioned deconsolidation in Mexico. Further, absence of a one-time advancement in sales from expansion of the North American wholesale business that took place last year hurt sales this quarter.
Revenues at the company’s Tommy Hilfiger segment jumped 3% to $932 million, while it rose 5% on a constant currency basis, mainly backed by 14% constant-currency sales growth in the brand’s International business.
On the other hand, the brand’s North American revenues slid 4% on a constant currency basis owing to a 7% plunge in comps. 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.
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 7%.
The Heritage Brands segment’s revenues tanked 5% year over year to $381 million due to the ongoing rationalization of this business by exiting various lines of business. As part of this, the company discontinued numerous licensed product lines in its dress furnishing business, in 2015. This continued to weigh upon sales in 2016. Nonetheless, comps remained flat year over year.
Financials
The company ended the quarter with cash and cash equivalents of $730.1 million, long-term debt of $3,197.3 million, and shareholders’ equity of $4,804.5 million.
During fiscal 2016, the company repurchased about 3.2 million shares for roughly $315 million of common stock under its Jun 2015 authorization of $500 million, extending over a three-year period. Further, on Mar 21, management authorized additional buybacks of $750 million, thus extending the program till Jun 3, 2020.
Guidance
PVH Corp.’s solid 2016 show even in the face of an uncertain macro environment keeps management impressed. Management believes that the company’s superb execution, continued investments in brands and international platforms kept it going. Also, keeping pace with the evolving trends and undertaking necessary initiatives to stay afloat in the current business scenario helped PVH sustain its momentum. Evidently, PVH Corp.’s recent deal to acquire True&Co (direct-to-consumer intimate apparel online retailer), underscores its focus on making innovations and enriching consumer experience.
However, going forward, the company remains cautious of adverse foreign currency movements, volatility in the macroeconomic and geopolitical environment. Considering all these factors, the company projects fiscal 2017 revenues to rise 2% year over year. On a currency neutral basis, revenues are expected to grow about 4%. Management expects revenues to continue being dented by the licensing deal with G-III Apparel as well as the Mexico deconsolidation.
Further, management envisions fiscal 2017 adjusted earnings per share in the range of $7.30–$7.40, including an expected 40 cents per share negative impact from currency headwinds. The guidance excludes pre-tax charges worth $110 million, which are anticipated to be incurred on various non-recurring transactions.
Q1 Guidance
For first-quarter fiscal 2017, the company expects total revenue to jump 2% year over year, while it is anticipated to advance 4%, on a constant-currency basis. First 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 first quarter are expected to be $1.58–$1.60, including 10 cents per share negative impact from currency translations.
The Zacks Consensus Estimate for the first quarter and fiscal 2017 is currently pegged at $1.57 and $7.25, respectively – thus signaling chances of upward revisions.
Stocks to Consider
Better-ranked stocks in the apparel/shoe space include The Children's Place, Inc. PLCE and Kate Spade & Company KATE, each sporting a Zacks Rank #1 (Strong 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 39% in the trailing four quarters. The stock also flaunts a long-term growth rate of 10.3%.
Kate Spade, with long-term earnings per share growth rate of 28.3%, has delivered positive earnings surprise in the last two quarters.
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