PVH Corporation PVH ended fiscal 2015 on a spectacular note, with better-than-expected top- and bottom-line results in the fourth quarter, following which shares of the company jumped 5.4% in the after-market trading session. Notably, this marked the company’s seventh straight quarter of a positive earnings surprise.
The company’s adjusted earnings per share of $1.52 not only beat the Zacks Consensus Estimate of $1.45, but also exceeded its own guidance range of $1.37–$1.47. However, the bottom line plunged 13.6% year over year, mainly on account of foreign currency headwinds. On a currency neutral basis, adjusted earnings rose 7% to $1.88 per share.
Including one-time items, PVH Corp. reported earnings of $1.63 per share that improved considerably from 62 cents earned in the year-ago quarter.
Quarter in Detail
PVH Corp.’s total revenue advanced 2.1% to $2,112.5 million, also exceeding the Zacks Consensus Estimate of $2,073 million.
Further, on a constant currency basis, the company’s total revenue rose 7%, beating management’s expectations of a 5% increase. This was mainly driven by strong revenue growth at its Tommy Hilfiger and Calvin Klein brands, on a currency neutral basis.
Total gross profit inched up 0.5% year over year to $1,072.9 million, while as a percentage of sales it contracted 100 basis points, to 50.8%.
Segment Analysis
PVH Corp. reports its financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.
Calvin Klein’s revenue surged 15% year over year to $806 million, while on a currency neutral basis, it was up 21%, driven by a respective 22% and 21% increase in the brand’s North American and International business, on a currency neutral basis.
North American operations gained strength from solid wholesale business growth, store expansions, along with Izod’s conversion into Calvin Klein Accessory and Calvin Klein Underwear stores. Further, comparable-store sales (comps) in the region grew 4% year over year, despite facing continued weak traffic and decreased spending trends across the company’s U.S. stores in international tourist locations.
The brand’s international business witnessed a 6% improvement in comps, backed by strength in European and Chinese operations, partly offset by soft Brazil revenues and persistent weakness noted in Hong Kong and Korea.
Revenue at the company’s Tommy Hilfiger segment dropped 2% to $904.1 million, though it rose 5% on a constant currency basis, backed by sales growth of 1% and 8% in the brand’s North American and International businesses, respectively.
At Tommy Hilfiger North America, wholesale operations’ growth was largely offset by softness witnessed in retail operations. Consequently, comps in the brand’s North American business tumbled 7%, attributable to persistent slow traffic and a decline in spending trends among customers at stores in international tourist locations.
International revenues improved on the back of solid European results, with comps increasing 10% year over year.
The Heritage Brands segment’s revenues slumped 10% year over year to $402.4 million due to the ongoing rationalization of this business by exiting various lines of business, closing the Izod retail division and realigning focus on more profitable areas. However, this decline was somewhat offset by an 8% jump in its Van Heusen comps.
Financials
The company ended the quarter with cash and cash equivalents of $556.4 million, long-term debt, excluding current maturities of $3,054.3 million, and shareholders’ equity of $4,552.3 million.
Also, during fiscal 2015, the company repurchased about 1.3 million shares for roughly $126 million of common stock under its Jun 2015 authorization of $500 million, extending over a three-year period.
Fiscal 2016 Guidance
Management remains pleased with the company’s solid quarterly performance, which outdid its own expectations, even amid tough macroeconomic conditions, adverse currency movements and intense promotions. Nonetheless, PVH Corp. expects the currency headwinds to prevail in fiscal 2016.
Revenue for fiscal 2016 is expected to inch up 1% year over year and jump roughly 2% on a currency neutral basis.
The company envisions fiscal 2016 earnings per share in the range of $6.30–$6.50, which includes an expected $1.60 per share negative impact from currency headwinds. Excluding this, however, the company anticipates adjusted earnings per share to increase 12%–15% from the fiscal 2015 level.
Free cash flow for fiscal 2016 is anticipated to be $500 million.
Q1 Guidance
For the first quarter of fiscal 2016, the company expects total revenue to rise 1% year over year, while currency neutral revenue is anticipated to increase 3%.
Adjusted earnings per share for the first quarter are expected to be in the range of $1.40–$1.45, including a 50 cents negative impact from currency translations. On a currency neutral basis, adjusted earnings growth is expected in a band of 27%–30%.
Zacks Rank
PVH Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Delta Apparel Inc. DLA with a Zacks Rank #1 (Strong Buy), and Coach, Inc. COH and Michael Kors Holdings Limited KORS, both carrying a Zacks Rank #2 (Buy).
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