A month has gone by since the last earnings report for PVH (PVH). Shares have added about 1.7% 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 Beats on Q2 Earnings & Sales, Ups FY18 View
PVH Corp reported solid results in second-quarter fiscal 2018, wherein earnings and sales outpaced estimates and improved year over year. In addition, results exceeded the company's expectations. While it witnessed the eighth straight sales beat, earnings topped estimates for the 17th consecutive quarter. Further, management issued a bullish guidance for the fiscal third quarter and raised its earnings view for the fiscal.
Quarterly results were mainly driven by a persistent momentum witnessed at the company's premium brands Calvin Klein and Tommy Hilfiger along with gains from foreign currency. Q2 Highlights
PVH Corp's adjusted earnings per share were $2.18, reflecting growth of 29% year over year. The bottom line also surpassed the Zacks Consensus Estimate of $2.11 and exceeded the company's guidance of $2.05-$2.10. Currency favorably impacted earnings by 3 cents per share in the reported quarter.
On a GAAP basis, the company's earnings of $2.12 per share increased 39.5% from $1.52 registered in the year-ago quarter and came above its guidance of $1.98-$2.03.
Total revenues advanced 13% to $2,333.7 million and outpaced the Zacks Consensus Estimate of $2,264 million. On a constant-currency basis, the top line improved 11%. Top-line growth stemmed from broad-based strength across the company's global businesses, with continued momentum in Calvin Klein and Tommy Hilfiger.
PVH Corp's total gross profit increased nearly 13% year over year to $1,297 million in the quarter under review while gross margin contracted 10 basis points (bps) to 58.3%. Adjusted EBIT was up 19.2% to $238.1 million with the adjusted EBIT margin expansion of 60 bps to nearly 10.2%. Segment Analysis
PVH Corp reports financial results under three business segments - Calvin Klein, Tommy Hilfiger and Heritage Brands.
Revenues at Calvin Klein
advanced 18% year over year to $925 million and increased 16% in constant currency. The segment's International sales grew 16% to $458 million and 13% on a constant-currency basis. Growth in International business was driven by strength in Europe and Asia, which includes a 5% increase in international comparable store sales (comps). The segment's North America sales were up 19% to $467 million, mainly supported by a robust wholesale performance along with 2% rise in comps.
Revenues at the Tommy Hilfiger
segment jumped 15% to $1 billion and improved 13% in constant currency. The segment's International revenues increased 20% to $592 million while it rose 16% in constant currency. This improvement was backed by a stellar performance in all regions and channels, and 11% comps growth. Additionally, its North America business witnessed revenue growth of 9% to $437 million, driven by 5% rise in comps and solid growth in wholesale business.
However, the Heritage Brands
segment's revenues dipped 3% year over year to $380 million. Nevertheless, the segment's comps improved 3%. Share Repurchase
In the first half of fiscal 2018, the company bought back 900,000 shares for roughly $137 million under its $1.25-billion standing authorization that extends till Jun 3, 2020. Since its inception, it repurchased nearly 7.7 million shares for $829 million under the program. FY18 Guidance
Following the robust quarterly results, management raised its earnings guidance for fiscal 2018. The company issued a bullish outlook for the fiscal third quarter as well.
Sales in the back half of fiscal 2018 are expected to be weak in comparison with the last year's number due to the 53rd week in fiscal 2017. Management anticipates total sales to be hurt by roughly $150 million, which includes $80 million due to the reduction of 53rd week in the fiscal fourth quarter versus the prior year, and $70 million, owing to the shift into the first half of fiscal 2018, which was in the second half of fiscal 2017.
For fiscal 2018, the company projects sales to increase 7% while constant-currency revenues are expected to grow 6% in comparison with fiscal 2017. Earlier, PVH Corp estimated sales to grow 6%, while constant currency was anticipated to increase 5%. Brand-wise, sales are anticipated to increase roughly 8% on both reported and currency-neutral basis at Calvin Klein and 9% (or 8% on a currency-neutral basis) at Tommy Hilfiger. At its Heritage Brands, the company expects sales to grow roughly 1% year over year.
Further, management still plans to incur roughly $15 million in marketing expenditures in the second half of the fiscal versus the prior year. This will be mainly associated with Calvin Klein.
Net interest expenses are expected to decline to $117 million in fiscal 2018 from $122 million in the prior year. Earlier, management projected net interest expenses to reduce to $120 million. Further, the effective tax rate for the fiscal is projected to be 13.5-14.5%, including the anticipated impact of the tax legislation compared with 14.5-15.5% guided earlier.
For fiscal 2018, management envisions adjusted earnings per share of $9.20-$9.25 compared with $9.05-$9.15 guided earlier and $7.94 reported in the prior-year period. Earnings per share exclude roughly $25 million of pre-tax costs to spend in relation to the TH China acquisition.
GAAP earnings per share are now projected to be $8.96-$9.01 compared with $8.81-$8.91 estimated earlier. Earnings projections include gain of roughly 7 cents per share from foreign currency translations, both on GAAP and non-GAAP basis. Q3 Guidance
For third-quarter fiscal 2018, the company expects total sales to increase nearly 7% year over year while it is anticipated to advance 9% on a constant-currency basis. Brand-wise, sales are expected to grow 5% (or 7% on a currency-neutral basis) at Calvin Klein, 10% (or 12% on a currency-neutral basis) at Tommy Hilfiger and 8% at Heritage Brands.
Net interest expenses are anticipated to decline to roughly $30 million in the fiscal third quarter. The effective tax rate for the quarter is anticipated to be 4-5%.
Adjusted earnings per share are expected to be $3.10-$3.13, up from $3.02 in the year-ago quarter. Earnings per share exclude roughly $7 million of pre-tax expenses associated with the TH China acquisition.
On a GAAP basis, the company envisions earnings per share of $3.03-$3.06 compared with $3.05 in the prior-year quarter. However, both GAAP and adjusted earnings are likely to be hurt by nearly 9 cents per share from foreign currency.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, PVH has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PVH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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