On Dec 15, 2015, Zacks Investment Research downgraded New York-based PVH Corp. PVH, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
This designer and marketer of branded dress shirts, neckwear, sportswear, footwear and other related products, recently posted third-quarter fiscal 2015 results, disappointing investors with weaker-than-expected sales for the third straight quarter in the fiscal. The company also issued a mixed outlook for fiscal 2015.
Investors seem to be gradually losing confidence in the stock as shares of the company have plunged 18.4% since its third-quarter earnings announcement on Dec 2. Also, year to date, the stock has nosedived 39.6%.
Though earnings beat expectations, PVH Corp.’s total revenue dropped about 3% to $2,164.5 million, reflecting the adverse impact of foreign currency translations. Further, quarterly revenue fell short of the Zacks Consensus Estimate of $2,170.1 million.
We note that PVH Corp.’s significant international presence as well as outlets in various tourist destinations in the U.S., exposes it to foreign currency risks in the current scenario, where the U.S. dollar is gaining strength against other currencies. This is quite evident from the company’s third-quarter fiscal 2015 earnings, which included an impact of 44 cents per share from adverse forex rates.
Though the company maintained its earnings outlook for fiscal 2015, it expects the currency headwinds to persist throughout the fiscal year and significantly impact its top and bottom lines. This is evident from the company’s lowered sales outlook and the fact that its earnings guidance now includes an expected $1.35 per share negative impact from currency headwinds and pressure from its Russian businesses, up from $1.30 per share projected earlier.
Alongside, the company anticipates changing spending patterns of international tourists in the U.S. and volatility in the global economic environment to weigh on results.
We believe that all the aforementioned factors led to downward revisions in PVH Corp.’s earnings estimates as analysts have become less constructive on the stock’s future performance. The Zacks Consensus Estimate declined 0.7% to $6.93 per share for fiscal 2015 and 5.3% to $1.43 per share for the fourth quarter, over the past 30 days.
Stocks to Consider
A better-ranked stock in the same industry is Hanesbrands Inc. HBI, with a Zacks Rank #2 (Buy). Other favorably ranked stocks in the related apparel-shoe industry include American Eagle Outfitters, Inc. AEO and Abercrombie & Fitch Co. ANF, each with a Zacks Rank #1 (Strong Buy).
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