PVH Q3 Earnings Beat Estimates but Fall Y/Y - Analyst Blog

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PVH Corporation ( PVH ) has again posted better-than-expected quarterly results. The company's third-quarter fiscal 2013 adjusted earnings of $2.30 per share beat its own guidance of $2.25 and the Zacks Consensus Estimate of $2.26. The upside was primarily driven by strong revenue growth from the acquisition of The Warnaco Group, Inc. and improved margins.

However, earnings fell 3.4% from the year-ago comparable quarter figure of $2.38 per share as the benefit of strong revenue growth from The Warnaco Group acquisition was offset by rise in input and operating costs, higher effective tax rate and a 12% rise in the number of outstanding shares.

Despite posting better-than-expected quarterly results, PVH Corp. has slightly lowered its revenue guidance while reaffirming the earnings guidance, which is much below the consensus estimate. This spread negative sentiment among investors and led the company's share price to fall 1.3% in the after-hours trading session.

Further, including one-time items such as acquisition, integration and restructuring costs related to The Warnaco Group and loss on sale of G. H. Bass & Co., PVH Corp. reported earnings of $2.37 per share, as against $2.27 earned in the comparable year-ago period.

Quarter in Detail

In the quarter, PVH Corp.'s total revenue rose 37.5% to $2,259.1 million from $1,642.8 million in the prior-year quarter. The year-over-year increase in revenues was attributable to robust sales performances across all segments of the company. Moreover, quarterly revenues surpassed the Zacks Consensus Estimate of $2,222.0 million.

PVH Corp.'s adjusted operating profit rose 20.2% to $305.5 million from $254.1 million in the year-ago comparable quarter. However, the company's operating margin contracted 200 basis points (bps) to 13.5% from the year-ago period. The year-over-year decline in operating margin was primarily due to lower gross margin and increased selling, general and administrative (SG&A) expenses as a percentage of sales, which more than offset the positive impact of The Warnaco Group acquisition.

Segment analysis

From the beginning of first-quarter fiscal 2013, PVH Corp. has decided to report its financial results under three business segments­: a) Calvin Klein, which includes Calvin Klein North America and Calvin Klein International segments; b) Tommy Hilfiger consisting of Tommy Hilfiger North America and Tommy Hilfiger International businesses; and c) Heritage Brands, which comprises Heritage Brands Wholesale and Heritage Brands Retail segments.

Calvin Klein 's revenues increased more than twofold to $799.7 million from $319.6 million in the year-ago quarter. This year-over-year revenue growth was driven by The Warnaco Group acquisition and a 3% rise in comparable-store sales (comps) at PVH Corp.'s Calvin Klein North America retail business. However, comps at the company's Calvin Klein International segment dropped 1%.

The segment's adjusted operating profit rose 56.1% to $144.2 million from $92.4 million, primarily driven by The Warnaco Group acquisition, strong sales at Calvin Klein's North America segment and an improved gross profit resulting from higher average unit retail selling price.

Revenues at the company's Tommy Hilfiger segment increased 10.4% to $920.7 million from $833.6 million in the year-ago period due to sales growth of 10% in the North American business and 11% in international business. The segment's North American business mainly benefited from a 3% rise in retail comps, along with square footage expansion and double-digit sales growth in the wholesale sportswear business. Further, double-digit sales growth in the European wholesale business, 4% comps growth in the European retail business and retail square footage expansion drove the segment's international revenues.

The segment's adjusted operating profit grew 6.1% to $143.2 million from $135.0 million in the third quarter of fiscal 2012. The increased operating profit was due to the above-mentioned reasons.

The Heritage Brands segment's revenues increased 10.1% year over year to $538.8 million from $489.5 million in third-quarter fiscal 2012. The rise was primarily driven by the newly acquired Speedo swim product and Warner's and Olga women's intimate apparel businesses, partially offset by negative impact due to the company's exit from Izod women's wholesale sportswear business and a 3% decline in comps.

However, adjusted operating profit fell 11.7% year over year to $41.7 million, due to revenue decline for the pre-acquisition of Heritage Brands businesses and lower gross margins experienced in the Bass retail business.

Balance Sheet

The company ended the quarter with $542.5 million of cash and cash equivalents compared with $276.6 million at the end of third quarter fiscal 2012. PVH Corp.'s long-term debt excluding current maturities increased over twofold to $4,174.6 million primarily due to The Warnaco Group acquisition. The company's shareholder equity was $4,335.6 million at the end of third-quarter fiscal 2013.


Despite posting better-than-expected third-quarter results, PVH Corp. remains cautious about the remaining period of fiscal 2013 since it anticipates intense competition and promotion by retailers in the holiday season. Therefore, the company has lowered the fiscal 2013 revenue guidance to $8.24 billion from $8.25 billion projected earlier.

The company's Calvin Klein, Tommy Hilfiger and Heritage Brands are expected to contribute $2.79 billion, $3.44 billion and $2.01 billion, respectively toward total revenue. Moreover, the company still expects fiscal 2013 adjusted earnings to come in at $7.00 per share. Currently, the Zacks Consensus Estimate stands at $7.07 per share, which may see revision in the coming days.

PVH Corp. intends to repay about $450 million of debt and projects total interest expense of $190 million in fiscal 2013. The tax rate is likely to be nearly 26.0%.

For fourth-quarter fiscal 2013, the company expects total revenue of $2.08 billion with Calvin Klein, Tommy Hilfiger and Heritage Brands contributing approximately $680 million, $910 million and $490 million, respectively.

The company anticipates interest expense of nearly $50 million and tax rate of approximately 27.0%. Moreover, PVH Corp. intends to make term loan payment of about $250 million in the quarter.

Based on the above-mentioned assumption, PVH Corp. expects fourth-quarter fiscal 2013 adjusted earnings to come in at approximately $1.40 per share. Currently, the Zacks Consensus Estimate is $1.54 per share, which may see revision in coming days.

Other Stocks to Consider

Currently, PVH Corp. carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the apparel retail industry include Columbia Sportswear Co. ( COLM ), Michael Kors Holdings Ltd . ( KORS ) and Quicksilver Inc . ( ZQK ). All these have a Zacks Rank #2 (Buy).

COLUMBIA SPORTS (COLM): Free Stock Analysis Report

MICHAEL KORS (KORS): Free Stock Analysis Report

PVH CORP (PVH): Free Stock Analysis Report

QUIKSILVER INC (ZQK): Free Stock Analysis Report

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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.

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