PVH Corp. (PVH) has decided to exit its Izod retail division as the unit’s business model has become unviable to generate an optimum return, due to increased competition from more premium brands in the market. The company stated that the operations under this division will be completely shut down by the end of fiscal 2015.
However, the company has made it clear that the closure will not affect the operations of its Izod wholesale unit, which displayed immense growth potential during the recent launch of its Fall 2014 collection at Kohl’s.
Coming back to Izod retail, the company’s decision to part from this unit will lead to the axing of 100 stores and renovation of 20 stores into Calvin Klein and Tommy Hilfiger store formats. Management believes that the conversions would result in higher sales per square foot and increase in operating margins across these stores, thereby favourably impacting the company’s fiscal 2016 results.
However, the company expects to incur pre-tax charges to the tune of $40 million relating to devaluation of its asset, dissolution of its unit, inventory write-downs and lease exit charges. Of the total charges, nearly 50% is expected to be non-cash.
With this latest move, we believe that PVH Corp. is moving in the right direction with regards to its strategy of focusing on higher-margin businesses and eliminating its weak divisions. In this connection, the company, in Oct 2013, had divested all the assets of its underperforming division, G.H. Bass & Co., and acquired The Warnaco Group Inc.
That being said, we believe PVH Corp. is on track to utilize the opportunities in the lifestyle apparel market, led by its premium Calvin Klein and Tommy Hilfiger brands.
Other Favorably Ranked Stocks
PVH Corp. currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the apparel retail space include G-III Apparel Group Ltd. (GIII), sporting a Zacks Rank #1 (Strong Buy), and Columbia Sportswear Company (COLM) and Crocs Inc. (CROX), both holding a Zacks Rank #2 (Buy).
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