PVH shares fall on weak 2013 outlook

Shares of PVH tumble on worries about acquisition-related costs, weak guidance

Associated Press

NEW YORK (AP) -- Shares of PVH Corp. fell Thursday after the clothing company warned that a recent acquisition will require more investment than it initially anticipated and weigh on its earnings for the year.

THE SPARK: PVH bought rival The Warnaco Group in a deal worth $2.9 billion that closed last month and solidified its control of the Calvin Klein clothing brand. PVH said late Wednesday that the investments needed in Warnaco are higher than it initially anticipated so it can rebuild its Calvin Klein denim and underwear business.

THE BIG PICTURE: New York-based PVH, previously known as Phillips-Van Heusen Corp., sells brands like Tommy Hilfiger, Izod and Bass.

The company said it plans to invest in its supply chain, product design, marketing and staff to help improve its business, along with lowering excess inventory levels and reducing sales of its brand in off-price sites. As a result of those investments, the company expects the Warnaco deal will reduce its 2013 earnings by 25 cents per share.

The news came as the company reported that its fourth-quarter net income more than doubled, easily beating Wall Street predictions. But the company issued lower-than expected profit predictions for the current quarter and fiscal year.

THE ANALYSIS: Despite the lackluster outlook, analysts were upbeat and focused on the company's long-term prospects.

Brean Capital LLC's Eric Beder backed his "Buy" rating and $127 price target for the stock, saying that investors should take advantage of any drop in its price and aggressively pick up shares. He added that in addition to the Warnaco deal, like other retailers, PVH's first-quarter results have probably been hurt by unusually cold March weather.

Cowen and Co.'s John Kernan agreed that investors should look at the drop as a buying opportunity, backing his "Outperform" rating for the shares. He said the company's long-term outlook remains the same.

"Investing in the Calvin Klein brand globally should create revenue opportunities for 2014 and beyond, which combined with global growth of the Tommy Hilfiger brand creates consistent mid-teens earnings per share growth potential," Kernan wrote in a note to investors.

THE SHARES: Down $5.31, or 4.7 percent, to $107.48 in heavy afternoon trading, after falling as low as $106.77 earlier in the day. Over the past 52 weeks, the company's shares have traded between $72.47 and $125.50.

PVH shares are up about 2 percent since the start of this year.

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