Keeping its earnings momentum alive in fiscal 2015, PVH Corporation PVH delivered better-than-expected results in the first quarter. The company’s adjusted earnings of $1.50 per share not only beat the Zacks Consensus Estimate of $1.38 per share, but also exceeded its own guidance range of $1.35–$1.40. Moreover, the bottom line improved 2% year over year. On a currency neutral basis, earnings soared 20% to $1.77 per share.
PVH Corporation – Earnings Surprise | FindTheCompany
Including one-time items, PVH Corp. reported earnings of $1.37 a share, up significantly from 42 cents reported in the year-ago quarter.
Shares of the company jumped 4.1% in the after-market trading session following the announcement.
Quarter in Detail
PVH Corp.’s total revenue declined 4.3% to $1,879.3 million, reflecting the adverse impact of foreign currency translations. However, quarterly revenue surpassed the Zacks Consensus Estimate of $1,859.5 million and also came ahead of the company’s own projection.
On a constant currency basis, the company’s total revenue registered growth of 3%. This was mainly driven by strong international revenues at its Tommy Hilfiger and Calvin Klein brands, on a currency neutral basis.
Total adjusted gross profit fell 6.1% year over year to $970.6 million, while as a percentage of sales it contracted 110 basis points (bps), to 51.6%.
PVH Corp.’s adjusted operating profit declined 3.5% to $196.1 million, with the adjusted operating margin expanding 10 bps to 10.4% in the quarter.
Segment Analysis
PVH Corp. reports its financial results under three business segments: a) Calvin Klein, b) Tommy Hilfiger and c) Heritage Brands.
Calvin Klein’s revenue dipped 2% to $653.9 million, while on a currency neutral basis, it advanced 5%, driven by a 2% and 8% jump in the brand’s North American and international businesses, respectively .
The North American operations improved due to a rise in the wholesale businesses, which in turn, benefitted from favorable shift in shipment timings. Comparable-store sales (comps) in the region inched down 1% owing to currency headwinds, leading to slow traffic. The brand’s international performance witnessed a 10% improvement in comps, backed by Asian strength due to the favorable timing of the Chinese New Year. Also, the company’s European operations picked up momentum.
Revenue at the company’s Tommy Hilfiger segment fell 11% to $767.1 million, though it rose 1% on constant currency basis, backed by sales growth of 2% in the International business, partly offset by a 1% decline in the North American business.
Comps in the brand’s North American business slipped 3%, on account of reduced traffic due to currency headwinds. International revenues improved on the back of solid European results, somewhat offset by weakness noted in Russia.
The Heritage Brands segment’s revenues increased 5.1% year over year to $458.3 million, benefitting from favorable shipment timings in its wholesale business, coupled with a 14% jump in its Van Heusen comps.
Financials
The company ended the quarter with cash and cash equivalents of $419.3 million, long-term debt, excluding current maturities of $3,389.7 million and shareholders’ equity of $4,444.5 million.
Also, management authorized a new share repurchase program of $500 million, extending over a three-year period.
Guidance
Though PVH Corp. faced sluggish tourist traffic due to currency headwinds, management remains pleased with the quarterly performance, as it outdid its own expectations. The company expects volatility in the consumer environment and currency headwinds to prevail throughout the fiscal. However, it remains confident of sailing through these headwinds, given its constant initiatives to efficiently manage inventories and enhance sales by driving local traffic. Also, its latest stock repurchase program underscores its financial strength and commitment to shareholders.
Consequently, the company raised its guidance for fiscal 2015. Revenue for fiscal 2015 is now expected to decline 3% from the year-ago period, while excluding the currency impact, it should rise 3%. Earlier, the company had projected a 4% revenue decline on a reported basis.
For fiscal 2015, the company now envisions earnings per share in the range of $6.85–$6.95, up from a range of $6.75–$6.90 anticipated earlier. The guidance includes an expected $1.25 per share negative impact from currency headwinds and pressure from its Russian businesses. Excluding this, however, the company now expects adjusted earnings per share to increase 11%–12% from the fiscal 2014 level, up from the previous forecast of a 10%–12% rise.
Further, free cash flow for the fiscal is anticipated to be $450 million, which will be allocated toward repaying a debt of $350 million and making share repurchases.
For the second quarter of fiscal 2015, the company expects an 8% decline in total revenue, while currency neutral revenue is expected to remain flat.
Adjusted earnings per share for the second quarter are expected to be in the range of $1.25–$1.30, including a 30 cents negative impact from currency translations. On a currency neutral basis, adjusted earnings are expected to rise 3%–6% year over year.
Zacks Rank
Currently, PVH Corp. carries a Zacks Rank #4 (Sell). Better-ranked stocks in the apparel space include Perry Ellis International Inc. PERY, with a Zacks Rank #1 (Strong Buy), and Columbia Sportswear Company COLM and Oxford Industries Inc. OXM, each with a Zacks Rank #2 (Buy).
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