Tommy Hilfiger, Calvin Klein Parent Company’s Stock Surges
PVH Corp.’s return to growth is taking shape — and Wall Street is on board.
The parent company to the Tommy Hilfiger and Calvin Klein brands revealed quarterly earnings Tuesday evening after the market closed, logging a $182 million profit, compared with losses of $51.7 million last year, and raising the company’s full-year guidance. Shares of PVH shot up at the start of Wednesday’s session as a result, closing up 15.21 percent to $120.73 apiece.
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“PVH posted a large 2Q beat up and down the [profit and loss statement],” Ike Boruchow, senior retail analyst at Wells Fargo wrote in a note. “[Earnings before interest and taxes] topped the Street by 80 percent as margins once again came in several hundred bps above pre-COVID levels. Likewise, their 3Q guide came in above Street while the 2021 [earnings-per-share] outlook was raised to $8.50 (from $6.50). There is clear momentum building at PVH as new CEO [Stefan] Larsson is navigating the turnaround very well thus far.”
Boruchow’s firm gave the stock an “equal weight” rating, maintaining the same price target of $110 a share and adding that PVH is benefiting from leaner inventory levels and the strength of the European business.
“Inventory was down [about] 13 percent in 2Q, driven by the sale of the Heritage Brands, cutting unproductive skus and optimizing buys,” the analyst wrote. “PVH is leveraging its connected inventory capabilities, which allows seamless flow of product between [direct-to-consumer] and wholesale channels and better aligns supply with demand resulting in more full-price selling and higher [average unit retails]. The capabilities are fully online in Europe and would continue to be rolled out across regions, which should support go-forward margin expansion.”
Retail investment research firm Jane Hali & Associates pointed out in a note that PVH’s two biggest brands — Tommy Hilfiger and Calvin Klein — are also benefiting from pent-up consumer demand, particularly around back-to-school and increased momentum in the denim category; an updated assortment, such as growth in sustainable products and strength in innerwear; margin expansion; pricing power; and growth in digital, which now represents 25 percent of PVH’s total revenues.
“Digital commerce remains key to PVH’s growth,” the Jane Hali & Associates note read. “PVH is moving away from traditional wholesalers and adopting more pure play platforms, mainly in Europe. Both Tommy Hilfiger and Calvin Klein offer a good digital experience. We believe the content is engaging and not overwhelming.”
PVH chief executive officer Stefan Larsson told WWD in an exclusive interview Tuesday that the company will continue to focus on developing its digital presence as more and more consumers take a hybrid approach to shopping.
“What we’re seeing consumers do when stores reopen is to increasingly shop between channels, keeping e-commerce as an option, while also enjoying being out and socializing and shopping in stores again,” Larsson said.
“The way we drive an accelerated recovery is positioning PVH well in order to win with the consumer moving into more of a new normal phase,” he added.
Simeon Siegel, managing director and senior retail analyst at BMO Capital Markets, said in a note that “following historical trends, we expect [PVH’s] guidance to prove conservative.”
That’s good news for the fashion company that is raising its full 2021 fiscal-year earnings per share outlook from $6.50 apiece to $8.50 each and is expecting full-year revenues between 26 and 28 percent, year-over-year.
Meanwhile, headwinds persist along the supply chain and in North America.
“PVH continues to see solid recovery overseas, with [the] U.S. still struggling due to lack of international tourism,” Boruchow said. “With international travel not expected to begin to inflect until the beginning of next year (at the earliest), the [North American] business is likely to remain challenged for the balance of 2021.
“PVH continues to experience four to six weeks delays in delivery, but has not seen the situation worsen,” he continued. “That said, PVH is baking an additional $0.16 headwind from incremental air freight costs (total headwind for [fiscal year] 2021 now at $0.35 included in [fiscal year] 2021 guidance). While [the] manufacturing situation in India is improving, Sri Lanka still remains challenged, though PVH is utilizing air freight to ensure goods are brought in and delivered on time. PVH only manufactures 10 percent of goods in Vietnam, so has not been as impacted as many in our coverage universe who are more highly levered to that country.”
Still, Larsson told analysts on Wednesday morning’s conference call that supply chain issues are something that is plaguing the industry at large at the moment.
“When we look ahead, we’re seeing some headwinds from the cost of goods and materials going up, like everyone else,” the CEO said on the call.
“In our guidance, there is an uncertainty around the pandemic and we see sales markups; we see supply chain disruptions,” Larsson told WWD. “That’s why we raised the guidance up, but we do it in a way that we feel is prudent for the rest of the year.”
In addition, PVH plans to use the $200 million from the sale of the Heritage Brands business to buy back shares in 2021.
“With an upcoming analyst day planned for later this year, we expect [PVH] to remain range bound until long-term targets are laid out and we get more clarity around the future [earnings-per-share] power in the model,” Boruchow said.
Shares of PVH Corp. are up approximately 103 percent, year-over-year.
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