PVH Corp to Exit Heritage Brands, Cut Jobs in North America
In the face of a tough retail environment, thanks to the coronavirus pandemic, PVH Corp. PVH has increased its focus on streamlining the North American business. The company has decided to exit its Heritage Brands Retail unit by closing 162 stores. Notably, the unit accounted for 2.6% of its total revenues in 2019.
This will lower the company’s headcount by 12% across all three brands — Calvin Klein, Tommy Hilfiger and Heritage Brands. Moreover, these structural changes are anticipated to generate cost savings of $80 million annually. The aforementioned store closures are likely to take place by mid-2021. Also, the store closures are expected to incur roughly $80 million of pre-tax costs, out of which nearly $10 million is projected to be non-cash.
Sources believe that the move came after the sudden softness in the apparel industry, with consumers sticking to budget buys amid these trying times. Industry experts have welcomed this step as the Heritage Brands Retail business, with a strong product portfolio of Van Heusen, Izod, Arrow, Warner’s, Olga and Geoffrey Beene, has failed to generate profits.
Notably, the company has been witnessing softness across its Heritage Brands segment for a while now. In first-quarter fiscal 2020, the Heritage Brands segment’s revenues fell 47% year over year, primarily owing to a rise in accounts receivable write-offs and inventory reserves, and deleveraging of expenses.
Apart from these, temporary store closures for about six weeks since the onset of the coronavirus led to sluggish performance in all its segments. Going ahead, management predicts the pandemic to weigh on the second quarter and fiscal 2020 results. It also envisions a more pronounced sequential impact of the pandemic on second-quarter revenues.
All said, we hope the company’s plans to exit the underperforming Heritage Brands business to provide some cushion to this Zacks Rank #5 (Strong Sell) company’s performance. We note that shares of this company have slumped 53.2% in the past six months compared with the industry’s decline of 23.9%.
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