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PVH Corp Gains 16% in 6 Months: What's Aiding the Stock?

Zacks Equity Research

PVH Corp. PVH has been gaining investors’ confidence, thanks to continued strength in its iconic Tommy Hilfiger brand. Further, management remains confident about the underlying power of Calvin Klein and Tommy Hilfiger brands, which positions the company well to deliver sustainable growth.

This coupled with impressive third-quarter results and upbeat earnings view for fiscal 2019 prompted this Zacks Rank #3 (Hold) stock to outperform the industry in the past six months. Shares of this premium apparel designer have gained 16.1% against the industry’s 3.1% decline. Also, its potential looks strong with a VGM Score of B and an expected long-term earnings growth rate of 10.1%.

Let’s Delve Deep

PVH Corp’s Tommy Hilfiger brand has been experiencing solid momentum and market share gains since the last few quarters. In fact, the brand’s performance, particularly in the international regions, remained sturdy in third-quarter fiscal 2019 backed by a stellar performance in Europe and gains from the Australia acquisition as well as comparable store sales (comps) growth of 8%. Also, the buyout of Tommy Hilfiger retail business in Central and Southeast Asia from the company’s prior licensee in that market (the TH CSAP acquisition) aided its performance.

At the Tommy Hilfiger segment, revenues improved 10% in the fiscal third quarter while international revenues grew 16%. Strength in the Tommy Hilfiger brand is expected to continue, evident from the management’s expectations. For the current fiscal year, revenues at Tommy Hilfiger are now anticipated to increase roughly 6%, up from 5% growth projected earlier. Revenues at the brand are expected to increase 4% in the fiscal fourth quarter.

Meanwhile, PVH Corp’s approach toward brand management facilitates each of its brands to develop further through effective marketing strategies, financial control and operating leverage. Apart from robust brand-management initiatives, PVH Corp remains committed to enhancing its shareholders’ value through constant share repurchases. For fiscal 2019, the company intends to repurchase shares worth nearly $300 million.

Robust Q3 & FY19 View

PVH Corp’s positive earnings surprise streak continued in third-quarter fiscal 2019. While its bottom line outpaced the Zacks Consensus Estimate in the trailing seven quarters, the top line surpassed the same in five of the last seven quarters. Moreover, revenues inched up 3% in the fiscal third quarter, primarily backed by growth at its Tommy Hilfiger and Calvin Klein, somewhat offset by revenue decline at Heritage Brands. Moreover, the company’s gross profit rose nearly 3%, with margin increasing 20 basis points.

As a result, management raised adjusted earnings per share view to $9.43-$9.45 for fiscal 2019, up from $9.30-$9.40 expected earlier. Also, its revenues are projected to increase about 1% (up 4% at constant currency) in the current fiscal year.

Deterrents

Despite the aforementioned positives, PVH Corp has been witnessing softness at its Heritage Brands segment, driven by softness across the unit’s wholesale and retail operations as well as a tough retail environment. Softness at Heritage Brands is expected to persist as the brand’s revenues are expected to decrease 3% in fiscal 2019.

Furthermore, adjusted earnings per share for the fiscal fourth quarter are envisioned in the band of $1.77-$1.79, down from $1.84 earned in the year-ago quarter. Also, impacts of adverse foreign currency movements remain concerns. Currency is expected to mar earnings per share by nearly 35 cents in fiscal 2019 and nearly 5 cents in the fourth quarter.

Key Picks

Crocs, Inc. CROX has an expected long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tailored Brands, Inc. TLRD delivered average positive earnings surprise of 16.2% in the last four quarters. Currently, the company carries a Zacks Rank #2 (Buy).

Deckers Outdoor Corporation DECK, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 12.1%.

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