PVH Corp (PVH) Jumps On Q2 Earnings & Sales Beat, Ups View

PVH Corporation (NYSE:PVH) posted better-than-expected earnings and sales results for second-quarter fiscal 2017. While sales marked its fourth consecutive beat, earnings kept its positive surprise streak alive for the 13th straight time. Further, the company raised earnings outlook for fiscal 2017.

Results continued to gain from solid momentum at the company’s premium Calvin Klein and Tommy Hilfiger brands, though it was partly hampered by a volatile macro and geopolitical environment.

Shares of the company jumped 3.7% in the after-market trading session following the results. Moreover, this Zacks Rank #2 (Buy) company has grown 12.2% in the last three months, outperforming the industry’s upside of 8%.

Q2 Highlights

The company posted second-quarter adjusted earnings per share of $1.69, up 15% year over year. Earnings also beat the Zacks Consensus Estimate of $1.65 and surpassed its own guidance range of $1.60-$1.63. However, currency hurt earnings by 5 cents per share in the quarter.

On a GAAP basis, PVH Corp. reported earnings of $1.52 per share, up 36.9% from $1.11 earned in the year-ago quarter.

PVH Corp.’s total revenues advanced 7.1% to $2,069.9 million, also surpassing the Zacks Consensus Estimate of $2,033 million. During the quarter, the company’s revenues reflected no impact from foreign currency both on a consolidated basis and segment-wise. Hence, second-quarter results do not include constant-currency discussions for revenue.

Adjusted gross profit increased 10.5% year over year to $1,147.3 million, with the gross margin expanding 170 basis points (bps), to roughly 55.4%.

Adjusted EBIT ascended 9.3% to $199.7 million, backed by improved Tommy Hilfiger and Heritage Brands earnings, somewhat negated by earnings decline in Calvin Klein due to higher investments and marketing expenditure, as well as increased corporate expenses. The adjusted EBIT margin expanded 10 bps to nearly 9.6%.

Segment Analysis

PVH Corp. reports financial results under three business segments: Calvin Klein, Tommy Hilfiger and Heritage Brands.

Calvin Klein’s revenues advanced 8% year over year to $786 million, including about $15 million impact from the deconsolidation of PVH’s business in Mexico in November 2016. The improvement was driven by a 20% increase in the segment’s International revenues, partially offset by a 1% decline in revenues for the North America business.

The growth in International business was backed by solid performance of wholesale business in Europe and China, alongside robust growth in the retail business due to 6% comparable store sales (comps) increase and square-footage expansion. Meanwhile, revenues for the North America business was mainly hurt by the deconsolidation of the Mexico business as well as 2% decline in comps.

Revenues at the company’s Tommy Hilfiger segment jumped 4% to $892 million, mainly backed by 9% sales growth in the brand’s International business owing to persistent strength in Europe and Asia, and 6% comps growth.

However, this was partly offset by a 2% decline in the brand’s North American revenues due to the discontinuation of its directly-operated womenswear wholesale business in the United States and Canada in fourth-quarter fiscal 2016 due to the licensing of this business to G-III Apparel Group, Ltd. (GIII). Further, comps for the North American business remained flat.

The Heritage Brands segment’s revenues rose 13% year over year to $392 million due to a planned change in shipment timings from both the first and third quarters in to the second quarter. Further, comps improved 1%.

Financials

The company ended the quarter with cash and cash equivalents of $559.4 million, long-term debt of $3,185.7 million, and shareholders’ equity of $5,095.2 million.

In first-half fiscal 2017, the company repurchased about 1.2 million shares for roughly $124 million under its $1.25 billion standing authorization that extends till Jun 3, 2020.

Guidance

Driven by the solid second-quarter results, improvement in foreign currency rates and continued strength across its brands, PVH Corp. expects to deliver a robust second-half performance. Consequently, the company raised earnings outlook for fiscal 2017 and initiated guidance for the third quarter. However, concerns regarding the volatile macroeconomic and geopolitical environment remain.

For fiscal 2017, the company now projects revenues to rise 6% year over year, while currency neutral revenues are expected to grow 5%. Earlier, the company forecasted revenue growth of 3%. Management expects revenues to continue being dented by the licensing deal with G-III Apparel as well as the Mexico deconsolidation.

Brand-wise, Calvin Klein revenues are anticipated to increase 8% (or 7% on a currency-neutral basis), revenues of Tommy Hilfiger are estimated to climb 6% (or 5% on a currency-neutral basis), and Heritage Brands is expected to remain flat year over year. Earlier, the company had project revenue growth of 6% for Calvin Klein and 2% for Tommy Hilfiger (4% on currency-neutral basis).

Further, management now envisions fiscal 2017 adjusted earnings per share in the range of $7.60-$7.70, compared with $7.40-$7.50 expected earlier. The latest outlook includes an expected 20 cents per share negative impact from currency headwinds. The guidance also includes an additional $10 million of marketing investments in the second half. On a GAAP basis, the company projects fiscal 2017 earnings per share in the range of $6.44-$6.54.

Q3 Guidance

For third-quarter fiscal 2017, the company expects total revenues to jump 4% year over year, while it is anticipated to advance 3%, on a constant-currency basis. Third-quarter revenues are also anticipated to bear the brunt of Mexico deconsolidation and the licensing agreement with G-III Apparel.

Brand-wise, Calvin Klein revenues are expected to jump 5% (or 4% on a currency-neutral basis), revenues of Tommy Hilfiger are estimated to advance 8% (or 7% on a currency-neutral basis), while revenues for Heritage Brands are expected to decline 8%.

Adjusted earnings per share for the second quarter are expected to be $2.88-$2.92, including 6 cents per share negative impact from currency translations. On a GAAP basis, the company envisions earnings per share of $2.74-$2.78 in fiscal 2017.

Stocks to Consider

Other top-ranked stocks in the same industry include Crocs Inc. (NASDAQ:CROX) , Gildan Activewear, Inc. (TO:GIL) and Lululemon Athletica Inc. (NASDAQ:LULU) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crocs has gained 26.5% year to date. Moreover, it has a long-term earnings growth rate of 15%.

Gildan Activewear has a long-term EPS growth rate of 13.5%. Further, the stock has returned 19.5% year to date.

Lululemon has grown nearly 23.7% in the last three months. Moreover, it has a long-term earnings growth rate of 12.6%.

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