Markets
VFC

PVH Corp Falls on Earnings Miss, Cuts View - Analyst Blog

Shares of PVH Corporation ( PVH ) fell 6.1% during yesterdays' after hours trading session after the premium specialty apparel retailer posted lower-than-expected first-quarter fiscal 2014 results and lowered its full fiscal earnings guidance.

PVH Corp. reported adjusted earnings per share of $1.47 for the first quarter, missing the Zacks Consensus Estimate by a couple of cents and 23% below the year-ago comparable period adjusted earnings of $1.91 per share. However, PVH Corp.'s adjusted earnings came within its guidance range of $1.45 to $1.50 per share.

The year over year decline was due to a difficult global retail environment which led to a rise in discounts. Another reason behind this decline was the harsh winter weather in North America which kept customers indoors, and hence compelled the company to offer promotional activities for the Calvin Klein business to its customers.

Including one-time items, PVH Corp. reported earnings per share of 42 cents, as against a loss of 13 cents in the comparable year-ago period.

Quarter in Detail

PVH Corp.'s adjusted total revenue inched up 1.2% to $1,963.7 million from $1,940.2 million in the prior-year quarter. On GAAP basis, the company's total revenue registered a year over year growth of 3%. The year-over-year increase in revenue was mainly due to improved contribution in revenue from the Tommy Hilfiger and Calvin Klein businesses, partially offset by revenue decline at the Heritage Brands business. However, quarterly revenue fell short of the Zacks Consensus Estimate of $1,988 million.

Total adjusted gross profit improved 1.7% year over year to $1,034.2 million while as a percentage of sales it expanded 30 basis points (bps) to 52.7%.

PVH Corp.'s adjusted operating profit declined 15.8% to $203.2 million from $241.3 million in the year-ago comparable quarter. Moreover, the company's operating margin contracted 210 bps to 10.3% from the year-ago period. The year-over-year decline in operating margin was primarily due to higher selling, general and administrative (SG&A) expenses as a percentage of sales partially offset by improved gross margin.

Segment Analysis

PVH Corp. reports its financial results under 3 business segments: a) Calvin Klein, b) Tommy Hilfiger and c) Heritage Brands.

Calvin Klein 's revenue increased 4% to $665.3 million in the quarter from $637.9 million in the year-ago quarter on an adjusted basis. The prior year non-GAAP figure excludes the impact of a $30 million sales return. Therefore, on GAAP basis, the segment's revenue grew 9%.

This year-over-year revenue growth was driven by an increase of 3% and 6% in North American and International businesses, respectively. The North American operation improved due to the recently acquired Warnaco business and slight improvement in wholesale as well as retail businesses. North American comparable-store sales (comps) remained flat year over year.

Strong sales performance in Asia led to growth of the International business. However, comps declined 5% primarily due to shift in timing of the Chinese New Year in the fourth quarter of fiscal 2013 and the ongoing transition in the European Jeans business.

The segment's adjusted operating profit declined 22.4% to $82.1 million from $105.8 million, primarily due to reduced gross margin in North America resulting from highly promotional retail environment and harsh winter weather. The year over year decline in operating profit was also due to the ongoing transition in the European jeans business and expenses related to strategic investments in newly acquired businesses.

Revenue at the company's Tommy Hilfiger segment increased 6% to $862.4 million from $811.4 million in the year-ago period due to sales growth of 5% in the North American business and 8% in the international business. The segment's North American business reflected 2% retail comps growth, while retail comps at the international business were up 6%. The segment's international wing gained from square footage expansion and strong sales performance in Europe.

The segment's operating profit inched down 2% to $115.2 million from $118.1 million in the first quarter of fiscal 2013. Decline in operating profit was due to lower gross margin in North America resulting from highly promotional retail environment and harsh winter weather partially offset by improved operating performance in European business.

The Heritage Brands segment's revenues decreased 2% year over year to $436.0 million from $490.9 million in first-quarter fiscal 2013. Revenue was negatively impacted by an 11% comps decline.

The segment's adjusted operating profit plunged 26.3% year over year to $28.8 million, due to lower revenue and decline in gross margin because of the increased promotional activities in the first quarter.

Balance Sheet

The company ended the year with $513.0 million of cash and cash equivalents compared with $746.3 million at the end of first-quarter fiscal 2013. PVH Corp.'s long-term debt excluding current maturities was $3,862.0 million compared with $4,362.3 million as of May 5, 2013. The company's shareholder's equity was $4,479.5 million at the end of first quarter.

Guidance

Battered by lower-than-expected first quarter results along with ongoing sluggish sales trend in the second quarter so far, PVH Corp. has lowered its fiscal 2014 earnings guidance.

For full-fiscal 2014, the company now expects adjusted earnings per share in the range of $7.30-$7.40 or a 4%-5% year-over-year improvement versus $7.40-$7.50 or a 5%-7% year-over-year improvement as guided earlier. Currently, the Zacks Consensus Estimate for the fiscal is pegged at $7.49 per share.

Revenue on non-GAAP basis for fiscal 2014 is expected to rise 3% to $8.5 billion, including the impact of sale of its Bass business. On a segment basis, the company anticipates revenue from its Calvin Klein business to rise 4%, while revenue for Tommy Hilfiger and Heritage Brands are expected to rise 7% and 4%, respectively. However, including the impact of the sale of its Bass Business, Heritage Brands revenue is expected to decline 6%.

Fiscal 2014 net interest expense is projected to be in the range of $140-$145 million, reflecting a decline from fiscal 2013 due to projected debt repayments of $400 million for the year, coupled with the impact of debt repaid in fiscal 2013, refinancing of its term loans and redemption of its 7 3/8% senior notes in the first quarter of 2014. Effective tax rate is expected to be in the range of 23.5%-24.5% on a non-GAAP basis.

For second-quarter fiscal 2014, the company expects total revenue of $2.0 billion, representing a 4% rise from the prior-year quarter. Revenue projections are based on a flat growth at Calvin Klein business, 9% rise at Tommy Hilfiger and a 2% growth at the Heritage Brands segment. However, including the impact of the sale of its Bass Business, Heritage Brands revenue is expected to decline 11%.

Adjusted earnings per share for the second quarter are expected to be in the range of $1.40-$1.45 compared with $1.39 per share earned in the prior-year quarter. Currently, the Zacks Consensus Estimate for the quarter is pegged at $1.48 per share.

Net interest expense for the second quarter is expected to be $35 million, while the tax rate is projected to be in the range of 26.5%-27.5%.

Other Stocks to Consider

Currently, PVH Corp. carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the apparel space include Hanesbrands Inc. ( HBI ), V.F. Corporation ( VFC ) and Michael Kors Holdings Limited ( KORS ), all of which carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

V F CORP (VFC): Free Stock Analysis Report

HANESBRANDS INC (HBI): Free Stock Analysis Report

PVH CORP (PVH): Free Stock Analysis Report

MICHAEL KORS (KORS): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

VFC PVH HBI

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More