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PVH Corp to Divest Speedo Business, Updates Earnings View

Zacks Equity Research

PVH Corp PVH has agreed to sell its Speedo North America business licenses to Pentland Group for $170 million in cash, after working capital adjustments. Notably, the Pentland Group is the parent company of Speedo International Limited, which licensed the Speedo trademark to a subsidiary of PVH Corp for perpetual use in North America and the Caribbean. Per the agreement, the subsidiary will be sold to the Pentland subsidiary.

The deal, which is expected to conclude in first-quarter fiscal 2020, is subject to customary closing conditions and regulatory approvals. Notably, the strategic move supports the company’s efforts to streamline its Heritage Brands business to adapt to the changing retail environment.

The Pentland Group had acquired Speedo in 1991 and has significantly contributed in making it the world’s major performance swimwear brand. With the aforesaid transaction, Pentland Group will reunite with the Speedo business globally, paving way to fully capitalize on the brand’s potential.
Following the divestiture announcement, PVH Corp revised its earnings view for the fourth quarter and fiscal 2019. Adjusted earnings are envisioned to be a minimum of $1.79 and $9.45, respectively, for the fourth quarter and fiscal year. The figures represent the high-end of its earlier guidance.

During third-quarter conference call, adjusted earnings per share were projected in the band of $1.77-$1.79 for fiscal fourth quarter. Further, management had anticipated adjusted earnings of $9.43-$9.45 for fiscal 2019.

Adjusted earnings projection exclude pre-tax costs in relation to Calvin Klein restructuring; Tommy Hilfiger’s flagship and anchor stores in the United States; the Socks and Hosiery transaction; Australia and TH CSAP acquisitions; and refinancing of the senior credit facilities. This also excludes pre-tax non-cash gain to write up PVH Corp's equity investments in Gazal Corporation Limited and PVH Brands Australia Pty. It also excludes pre-tax non-cash loss in connection with the divestiture of the aforesaid Speedo North America business and deconsolidation of the Speedo assets.

On a GAAP basis, PVH Corp now projects loss per share of about 20 cents for the fiscal fourth quarter. For fiscal 2019, GAAP earnings are likely to be $6.32.

Price Performance & Zacks Rank

In the past three months, shares of the premium apparel designer have gained 23.3% compared with the industry’s 12.2% rise. 

PVH Corp currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

More Stocks to Consider

lululemon athletica inc LULU has an impressive long-term expected earnings growth rate of 17.6%. The company presently carries a Zacks Rank #2.

NIKE, Inc NKE, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 13.1%.

Ralph Lauren Corporation RL has an expected long-term earnings growth rate of 8.4% and a Zacks Rank of 2.

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