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PVH Corp. Completes G.H. Bass & Co. Sale

Zacks Equity Research

Recently, PVH Corporation (PVH) announced that it has completed the divestment of all the assets of its G.H. Bass & Co. division to a subsidiary of G-III Apparel Group, Ltd. (GIII). The deal, which fetched nearly $50 million of cash to PVH Corp., was signed in early October.

Founded in 1876, G.H. Bass & Co. is a leading footwear brand that was acquired by PVH Corp. in 1987 from Unilever plc (UL) for $79 million. The segment has been an important contributor to PVH Corp.’s growth. However, the company is now keen to exploit the growth potential of its lifestyle apparel business.

PVH Corp., which competes with Ralph Lauren Corp. (RL), intends to utilize the net proceeds to make additional debt prepayments. Moreover, the transaction is expected to dilute the company’s 2013 earnings per share.

Despite expectations of an earnings dilution due to this deal, PVH Corp. reiterated its full-year 2013 earnings guidance of $7.00 per share. Moreover, the company raised its third-quarter earnings per share outlook to $2.25 from the former projection of $2.20.

We believe that the company’s recently concluded transaction furthers its plans to concentrate on higher-margin businesses, led by the Calvin Klein and Tommy Hilfiger brands, rather than lower-margin products to drive long-term growth and enhance shareholder value.

In consistence with the above-mentioned strategy, on Oct 3, the company formed a joint venture (:JV) with Gazal Corporation Limited – a leading apparel supplier and retailer in Australasia – to expand PVH Corp.’s Calvin Klein brand across Australia, New Zealand and the South Pacific nations and islands.

The newly formed JV has been named PVH Brands Australia Pty. Limited and it will operate, manage and distribute Calvin Klein products across the aforementioned nations. The JV is expected to commence its operations on Feb 3, 2014 and will have a 20-year licensing period.

Furthermore, last week, PVH Corp. announced its plans of promoting the present CEO of Tommy Hilfiger and PVH International, Fred Gehring. By the end of fiscal 2014, Gehring will become the Chairman of Tommy Hilfiger and Vice Chairman of PVH Corp. In his new role, Gehring will be responsible for forming the overall operational strategy of Tommy Hilfiger and will advise Daniel Grieder, the successor of Gehring’s current post.

On Oct 7, Calvin Klein had appointed Frank Cancelloni as the President of Calvin Klein Asia Pacific. Cancelloni will take over his new post on Dec 4, 2013. In his role as the President of Calvin Klein’s Asian operations, Cancelloni will oversee execution of the company’s worldwide initiatives for the brand, operations and licensing with the aim to drive further growth.

Cancelloni will also be responsible for formulating business policies in the Asia-Pacific region, focusing on strengthening the company’s well-known operations as well as increasing its market share in the high-growth markets of the region. Based in the company’s headquarters in Hong Kong, Cancelloni will report to Steve Shiffman, President & Chief Commercial Officer of Calvin Klein.

We believe that PVH Corp. is moving in the right direction, which will help it to exploit opportunities in the lifestyle apparel market. However, lingering macroeconomic factors are likely to hinder the company’s growth in the near term. In addition, the company’s performance could suffer due to its significant presence in the international market that consequently exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits. Therefore, PVH Corp. currently carries a Zacks Rank #4 (Sell).

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