PVH Corp. PVH reported better-than-expected earnings and sales in fourth-quarter fiscal 2017. While this marked the company’s sixth straight sales beat, earnings topped estimates for the 15th consecutive quarter. Further, management issued bullish guidance for first-quarter and fiscal 2018.
Persistent momentum at the company’s premium brands — Calvin Klein and Tommy Hilfiger — drove the quarterly results, which exceeded expectations. Consequently, shares of PVH Corp. rose 2.8% in after-market trading yesterday. Also, this Zacks Rank #3 (Hold) stock has gained 4.9% in the last three months, faring better than the industry’s upside of 1.4%.
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Q4 Highlights
PVH Corp.’s adjusted earnings per share came in at $1.58, up considerably 28.5% year over year. The bottom line also surpassed the Zacks Consensus Estimate of $1.48 and outperformed its own guidance range of $1.42-$1.44. Currency favorably impacted earnings by 4 cents per share in the quarter.
On a GAAP basis, the company’s earnings of $1.39 per share were up 10.3% from $1.26 earned in the year-ago quarter.
The company’s total gross profit increased 20.3% year over year to $1,369 million in the quarter, with gross margin expansion of 80 basis points (bps) to 54.8%.
Adjusted EBIT was up 20.4% to $176.7 million, driven by improvement in earnings witnessed at Tommy Hilfiger and Calvin Klein. The metric was somewhat negated by an earnings decline in Heritage Brands due to higher marketing expenditures and increased corporate expenses. The adjusted EBIT margin expanded 10 bps to nearly 7.1%.
PVH Corp. Price, Consensus and EPS Surprise
PVH Corp. Price, Consensus and EPS Surprise | PVH Corp. Quote
Segment Analysis
PVH Corp. reports financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.
Calvin Klein’s revenues advanced 23% year over year to $977 million while it grew 18% in constant currency. Further, the segment’s International revenues surged 33% to $512 million and 23% on a constant-currency basis. Growth in International business was backed by sturdy performance in Europe and Asia, which includes a 4% increase in international comparable store sales (comps). However, gain from 53rd week was primarily offset by a decrease in revenue attributable to the timing of the Chinese New Year.
The segment’s North America revenues were also up 13% to $464 million driven by solid wholesale performance in all categories along with a 4% rise in comps. However, the gain from a 53rd week was mitigated by a decline in revenues due to the deconsolidation of the segment’s business in Mexico in November 2016.
Revenues at the company’s Tommy Hilfiger segment jumped 22% to $1.1 billion while it improved 15% in constant currency. The improvement in revenues can be primarily attributed to sales growth of 37% to $702 million in the brand’s International business owing to stellar performance in all regions and channels, gain from the 53rd week, and 6% comps growth.
Additionally, the segment’s North America business witnessed 5% increase in revenues to $439 million (4% growth in constant currency) driven by a 10% rise in comps. However, the metric was partly offset by a decline in the wholesale off-price distribution. Further, the decline in revenues from discontinuation of its directly-operated womenswear wholesale business in the United States and Canada in fourth-quarter fiscal 2016, in connection with the licensing of the business to G-III Apparel Group, Ltd. (GIII), was mitigated by gain from the 53rd week in fourth-quarter fiscal 2017.
Meanwhile, the Heritage Brands segment’s revenues remained flat year over year. However, the segment’s comps improved 1%.
Share Repurchase
In fiscal 2017, the company bought back 2.2 million shares for roughly $250 million under its $1.25 billion standing authorization that extends till Jun 3, 2020.
Guidance
Following the robust quarterly performance, positive impacts from foreign currency rates and continued strength across its brands, management issued impressive first-quarter and fiscal 2018 guidance.
For fiscal 2018, the company projects revenues to rise 7% while constant-currency revenues are expected to grow 4% in comparison to fiscal 2017. Brand-wise, the metric is anticipated to increase roughly 9% (or 7% on a currency-neutral basis) at Calvin Klein and 8% (or 4% on a currency-neutral basis) at Tommy Hilfiger. Further, the company expects revenues from its Heritage Brands to be flat year over year.
Net interest expenses are expected to decline to $120 million in fiscal 2018 from $122 million in the prior year. The effective tax rate for the fiscal is projected in a band of 14.5-15.5%, including the anticipated impact of the Tax Legislation.
Management envisions fiscal 2018 adjusted earnings per share in the range of $9.00-$9.10, compared with $7.94 last year. The Zacks Consensus Estimate for the fiscal is pegged at $8.91, which is likely to witness upward revisions.
GAAP earnings per share are projected in the range of $8.76-$8.86 compared with $6.84 earned in fiscal 2017. Earnings projections include gain of roughly 35 cents per share from foreign currency translations, both on GAAP and non-GAAP basis.
Q1 Guidance
For first-quarter fiscal 2018, the company expects total revenues to increase nearly 15% year over year while it is anticipated to advance 9% on a constant-currency basis. Brand-wise, revenues are expected to grow 17% (or 12% on a currency-neutral basis) at Calvin Klein, 19% (or 10% on a currency-neutral basis) at Tommy Hilfiger and 2% at Heritage Brands.
Net interest expenses are anticipated to remain flat at $29 million in the fiscal first quarter. The effective tax rate for the quarter is anticipated in a band of 16-17% that includes the planned impact of the Tax Legislation.
Adjusted earnings per share are expected in a band of $2.20-$2.25 than $1.65 in the year-ago quarter. The Zacks Consensus Estimate is pegged lower at $1.95 for the fiscal first quarter. On a GAAP basis, the company envisions earnings per share of $2.13-$2.18 compared with 89 cents in the prior-year quarter. Both GAAP and adjusted earnings guidance include 20 cents per share gain from foreign currency.
Top-Ranked Stocks From the Same Industry
Investors may consider some better-ranked stocks like Columbia Sportswear Company COLM, Guess?, Inc. GES and Michael Kors Holdings Limited KORS, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Columbia Sportswear pulled off an average positive earnings surprise of 16.5% in the last four quarters. The company has a long-term earnings growth rate of 9.6%.
Guess? with an impressive earnings growth rate of 17.5%, delivered an average positive earnings surprise of 34.7% in the trailing four quarters.
Michael Kors has a long-term earnings growth rate of 7%. Further, the company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 32.7%.
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