PVH Corp Down 22% in 3 Months: What's Hurting the Stock?

PVH Corp PVH has been losing investors’ confidence due to persistent softness at its Calvin Klein business. Additionally, the company issued a dull earnings view for both second-quarter and fiscal 2019. Per management, the tough and volatile macroeconomic environment continued into the fiscal second quarter along with soft U.S. and China retail environment, which further affected investors’ sentiments.

Consequently, shares of this Zacks Rank #4 (Sell) company have lost 21.6% in the past three months against the industry’s 0.9% growth.

Let’s Delve Deep

Issues related to the Calvin Klein’s Jeans business owing to fashion miss are the primary reason behind the segment’s dismal performance. While revenues at Calvin Klein remained flat in first-quarter fiscal 2019, the segment’s International revenues fell 2%. Robust growth in Europe was more than offset by the adverse impacts of currency and weakness in China.

Moreover, International comparable sales (comps) at Calvin Klein declined 4%. Further, the segment’s North America revenues were somewhat hurt by a 5% fall in comps. For second-quarter fiscal 2019, PVH Corp expects revenues to decline 4% (down 2% at constant currency) at Calvin Klein. Although management has been taking initiatives to boost its Calvin Klein segment, it will take time.

Meanwhile, PVH Corp has been witnessing adverse impacts of foreign currency translations. Management expects foreign currency headwinds to weigh on earnings throughout fiscal 2019 due to the constant strengthening of the U.S. dollar. Furthermore, unfavorable foreign currency rate is now expected mar earnings by nearly 32 cents per share in fiscal 2019, up from 22 cents estimated earlier. Notably, the company’s adjusted earnings guidance includes an anticipated adverse impact of nearly 6 cents from foreign currency in the fiscal second quarter.

Despite robust earnings in first-quarter fiscal 2019, management trimmed its bottom-line view for the fiscal year. Adjusted earnings per share are now envisioned in the band of $10.20-$10.30, down from the earlier guided range of $10.30-$10.40. For the fiscal second quarter, adjusted earnings are expected to be $1.85-$1.90 per share, down from $2.18 earned in the year-ago quarter.

Consequently, analysts are becoming bearish on the stock, evident from significant downward revisions in the company’s earnings estimates. The Zacks Consensus Estimates of $10.27 for fiscal 2019 and $11.22 for fiscal 2020 has moved down 17 cents and 30 cents, respectively, over the past 30 days. For the fiscal second quarter, the consensus mark of $1.89 decreased by 54 cents in the same time frame.

While the aforementioned factors make us apprehensive about the company’s performance, PVH Corp’s approach toward brand management looks promising. Backed by this strategic effort, each of the company’s brands is expected to develop further through effective marketing strategies, financial control and operating leverage.

Apparently, PVH Corp’s Tommy Hilfiger brand is consistently experiencing solid momentum and market share gains for the last few quarters. In first-quarter fiscal 2019, the brand’s performance remained sturdy owing to a stellar performance in Europe and comps growth of 9%.

PVH Corp has also been experiencing robust momentum in international business, mainly backed by strong growth in Europe. Improved trends in the company’s North American business, especially the wholesale unit, are also contributing to the results. Impressively, the company’s digital channel witnessed revenue growth of more than 20% at its owned and operated businesses.

3 Stocks to Consider in the Same Space

Crocs, Inc. CROX has an expected long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

lululemon athletica inc. LULU has an impressive long-term earnings growth rate of 18.4% and a Zacks Rank #2 (Buy).

Columbia Sportswear Co. COLM, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.9%.
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