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PVH Corp (PVH) Moves Up the Charts: Will Growth Continue?

Zacks Equity Research

PVH Corp. PVH has been benefiting from its diversified brand portfolio, particularly the Tommy Hilfiger brand. Also, the company has been experiencing robust momentum in the international business, mainly backed by solid growth in Europe and Asia. Improved trends in the company’s North American business, especially the wholesale unit, are also contributing to the company’s results.

In fourth-quarter fiscal 2018, PVH Corp delivered impressive results, wherein earnings and revenues surpassing the Zacks Consensus Estimate. In fact, this marks the company’s 19th straight quarter of bottom-line beat. Earnings also improved on a year-over-year basis. Further, management issued an encouraging view for first-quarter and fiscal 2019. Markedly, the stock has gained approximately 13% since the announcement of its quarterly results on Mar 27. (Read: PVH Corp Q4 Earnings Beat Estimates, Revenues Down Y/Y)

Moreover, the Zacks Consensus Estimate has been witnessing an uptrend. We note that the consensus mark for first-quarter and fiscal 2019 have moved north by 5 cents and 9 cents to $2.44 and $10.32, respectively, over the past seven days.

In the past three months, shares of this Zacks Rank #3 (Hold) company have surged roughly 38%, outperforming the industry’s 25.8% growth.



Factors Behind PVH Corp’s Solid Performance

PVH Corp’s diversified brand portfolio allows it to stay ahead of its peers, generate above-average industry growth and sustain its position in the current challenging environment. Moreover, the company’s approach to brand management facilitates each of its brands to develop further through effective marketing strategies, financial control and operating leverage. Based on the strength of many of its brands, particularly Tommy Hilfiger, coupled with opportunities with regard to distribution, we believe that the company is poised for long-term growth.

Recently, the company agreed to reacquire the Tommy Hilfiger brand’s license in Central and South East Asia from Dickson Concepts (International) Limited. Notably, the transaction is in sync with the company’s strategy of having direct control over its brands, which also covers licensed businesses. Through the latest agreement, PVH Corp will be able to leverage growth opportunities in the Central and South East Asian region. Further, the company expects its Asia Pacific platform to aid expansion of the Tommy Hilfiger brand in Greater China. The enhancement of this brand will be backed by further investments for introducing other product lines and expanding brand presence.

Upbeat View

After a solid end to fiscal 2018, PVH Corp is optimistic about the prospects in fiscal 2019. The company expects fiscal 2019 revenues to benefit from the completion of pending acquisitions of 78% interest in Gazal Corporation Limited and the Tommy Hilfiger retail business in Hong Kong, and certain other countries in Central and Southeast Asia from Dickson Concepts (International) Limited during second-quarter fiscal 2019. These transactions are likely to augment revenues by $150 million in fiscal 2019. As a result, the company expects 4% revenue growth (up 5% in constant currency) in the fiscal year.

Brand-wise, sales are anticipated to increase roughly 6%, 2% and 3% for the Tommy Hilfiger, Calvin Klein and Heritage Brands businesses, respectively. Moreover, sales at Tommy Hilfiger and Calvin Klein are likely to grow 8% and 3% each, on a constant-currency basis. Further, it envisions adjusted earnings per share of $10.30-$10.40 for fiscal 2019, with GAAP earnings of $8.90-$9.00.

Possible Deterrents

PVH Corp is grappling with softness in its Calvin Klein business over the past few quarters. This, in turn, has been weighing on the company’s consolidated sales, which dipped nearly 1% in fourth-quarter fiscal 2018. PVH Corp’s Calvin Klein business reported a 2% sales decline in the fourth quarter due to the inclusion of an additional week in fiscal 2017 and soft results in North America.

Nevertheless, Calvin Klein is poised to witness growth of about $12 billion in global retail sales in the next few years. Calvin Klein’s strategy unfolds three key initiatives that include the redesigning of the CALVIN KLEIN 205W39NYC business, adopting the digital-first model and streamlining its North America business.

We expect all afore-mentioned factors to continue bolstering the company’s performance and help it sustain momentum.

Key Picks

G-III Apparel Group, Ltd. GIII outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Columbia Sportswear Company COLM has a long-term earnings growth rate of 10.9% and a Zacks Rank #1.

Ralph Lauren Corporation RL has a long-term earnings growth rate of 10.3% and a Zacks Rank #2 (Buy).

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