PVH Corp Stock Is Not Trendy in After Hours Trading
PVH Corp (NYSE:PVH), formerly the Philips-Van Heusen Corporation, just reported a pretty rough quarter missing top and bottom lines. The company itself may not sound familiar, but it operates as an apparel company in the United States and internationally. It is engaged in the design, marketing, and retail of branded dress shirts, neckwear, sportswear, swim products, footwear, athletic apparel, body wear, eyewear, sunwear, watches, handbags, men’s tailored clothing, men’s dress furnishings, accessories, women’s dresses and suits, women’s performance apparel, golf apparel, fragrances, home and bedding products, bathroom accessories, and luggage.
The company offers its products under its own brands, such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Warner’s, Olga, and Eagle. It also has licensed brands comprising Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, MICHAEL Michael Kors, Michael Kors Collection, Chaps, Donald J. Trump Signature Collection, DKNY, Elie Tahari, Nautica, Ted Baker, J. Garcia, Claiborne, Robert Graham, U.S. POLO ASSN., Ike Behar, Axcess, Jones New York, and John Varvatos. It has various other licensed and private label brands, but the point is that these are household brand names. The company’s stock is getting hammered as I type after hours due to its financial results, which missed earnings and revenue estimates.
Earnings per share on a non-GAAP basis were $1.47 as compared to $1.91 in the prior year’s first-quarter. GAAP earnings per share was $0.42 as compared to the prior year’s first-quarter loss per share of $0.13. Revenue was $1.964 billion, an increase of 4 percent on a non-GAAP basis as compared to the prior year amount excluding $47 million of revenue related to the Bass business (which was sold during the fourth-quarter of 2013), despite revenue in the North American businesses being under significant pressure due to unseasonably cold weather across the region. On a GAAP basis, total revenue increased 3 percent as compared to prior year GAAP revenue of $1.910 billion. Further, 2013 GAAP revenue was $30 million lower than revenue on a non-GAAP basis, attributable to sales returns for certain wholesale customers in the acquired Asia business in connection with an initiative to reduce excess inventory levels.
The revenue increases over the prior year were principally driven by growth in the company’s Tommy Hilfiger business of 6 percent and in the company’s Calvin Klein business of 4 percent on a non-GAAP basis and 9 percent on a GAAP basis. These increases were partially offset by a revenue decline of 2 percent in the company’s Heritage Brands business excluding the $47 million of 2013 Bass revenue, or 11 percent including such revenue. Commenting more on the results, Emanuel Chirico, Chair and Chief Executive Officer, stated the following:
We are pleased with our first-quarter results, which were in-line with our expectations, despite the unseasonably cool weather in North America and the volatility experienced in the global retail environment in the first quarter. Unfortunately, the challenging macroeconomic environment has continued into the second-quarter, with heightened promotional activity across the North American retail landscape. As such, we believe our North American businesses will experience margin pressure in the second-quarter and we have lowered our full year earnings per share guidance to reflect this. We will continue to make the previously planned strategic investments, particularly in the acquired Calvin Klein businesses, in order to unlock the full global potential of the Calvin Klein businesses over the long-term.
I am pleased that the Warnaco integration is progressing well and we have achieved numerous milestones to date. 2014 continues to represent a year of two stories — the first half is pressured by our strategic investments, while fall 2014 will be the first season we offer product by our newly established design and sourcing teams and presented in an enhanced retail environment. Despite first half pressures, we are well-positioned and have not changed our outlook for the second half of the year, for which we expect earnings per share to increase approximately 20 percent on a non-GAAP basis over last year’s second half. The power of our brands, led by Calvin Klein and Tommy Hilfiger, remains strong, and we believe that the investments we make during 2014 and the financial flexibility achieved by our continued debt repayment will enable us to capitalize on growth opportunities over the long-term.
Looking ahead, earnings per share for the year is currently projected to be in a range of $7.30 to $7.40 on a non-GAAP basis, as compared to $7.03 in 2013, or an increase of 4 percent to 5 percent. This guidance reflects an expected $10 million increase in Calvin Klein advertising expenses over the prior year, primarily in the second quarter. Second half earnings per share on a non-GAAP basis is expected to increase approximately 20 percent, with the majority of the growth expected in the fourth-quarter. Revenue is currently projected to increase to approximately $8.5 billion, an increase of approximately 5 percent compared to the prior year amount excluding revenue of $176 million related to the Bass business. All things considered, although PVH Corp missed earnings, it does not warrant a sell. That said, the guidance isn’t strong enough to justify a buy at current levels either. In fact, I would argue that given the earnings potential and results of the company, the stock is appropriately priced around $125.
Disclosure: Christopher F. Davis holds no position in PVH Corp and has no intentions of initiating a position in the next 72 hours. He has a hold rating on the stock and a $120 price target.