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PVH Corp (PVH) Revises FY21 View on Heritage Brands' Exit

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PVH Corp PVH announced the sale of its Heritage Brands business through a definitive agreement with Authentic Brands Group (ABG). Per the deal, the company will divest certain intellectual property and other assets of this unit, which includes IZOD, Van Heusen, ARROW and Geoffrey Beene brands, for nearly $220 million in cash. However, the company will retain the Warner’s brand that sells intimates and underwear along with its dress shirts and neckwear business.

The transaction is likely to close by the third quarter of fiscal 2021. Also, the net proceeds from the sale will be utilized to repurchase shares. Apart from these, management revealed plans to resume dividend payments.

This move is part of its efforts to streamline the North American business due to the tough retail environment. Moreover, it will enable PVH Corp to focus better on its core brands, including Calvin Klein and Tommy Hilfiger, which have been gaining market share for a while now on the back of strong demand. Further, the company remains committed to drive growth in international markets along with other notable efforts, including higher pricing, margins expansion and a solid e-commerce business. The company is also on track with the expansion of the direct-to-consumer digital business and has been strengthening its network with third-party digital partners.

In another recent development, PVH Corp revised its fiscal 2021 view in relation to the aforementioned deal. The company now expects fiscal 2021 revenues to grow 22-24% year over year on a reported basis and 19-21% at constant currency (cc). This compares unfavorably with the earlier guided view of 24-26% year-over-year (21-23% on a cc basis) sales growth. Also, the sales view includes a positive impact of foreign currency to the tune of 3%. Meanwhile, fiscal 2021 earnings per share on a GAAP basis are now envisioned to be roughly $6.60, up from the prior view of $5.50. This includes a pre-tax gain of almost $100 million related to the sale of the Heritage Brands business. Adjusted earnings are still projected to be $6.50 per share for the said period.

For second-quarter fiscal 2021, the company retained its outlook with sales growth of 34-36% (29-31% on a cc basis) year over year. Adjusted earnings are likely to be $1.15-$1.18 per share, up from 13 cents reported in the prior-year quarter. PVH Corp is likely to incur a pre-tax expense of $21 million due to the sale of the Heritage Brands Retail business, of which $8 million have already been incurred in the fiscal first quarter, with $13 million remaining to be incurred in the second quarter of fiscal 2021.

In the past three months, shares of this Zacks Rank #1 (Strong Buy) company have gained 9.7%, outperforming the industry’s growth of 6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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