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PVH Corp Raises View, Reorganizes Calvin Klein Unit, Stock Up

Zacks Equity Research

PVH Corp. PVH has gained investors’ confidence, with its shares rising as much as 5.9% in after-hours trading yesterday, following the company’s raised adjusted profit forecast for the fourth quarter and fiscal 2018. Concurrent to this press release, it also revealed strategies to address the issues at its premium Calvin Klein brand that witnessed softness in the third quarter of fiscal 2018.

Management now envisions adjusted earnings per share of minimum $1.75 for fourth-quarter fiscal 2018, which is 15 cents higher than the upper-end of its prior mentioned $1.58-$1.60. This guidance comprises 5 cents per share gain from lower income tax expenses. Moreover, the current earnings projection reflects rise of 10.8% from the year-ago quarter. For fiscal 2018, adjusted earnings per share are estimated to be at or above $9.50 compared with $9.33-$9.35 stated earlier. The updated guidance also reflects a sharp increase from $7.94 earned in fiscal 2017.

The Zacks Consensus Estimate for the fourth quarter and fiscal 2018 is currently pegged at $1.60 and $9.36, respectively.

The raised earnings guidance was due to the company’s robust diversified business model. It has been witnessing momentum in all of its business units amid tough macroeconomic and volatile landscape. However, PVH Corp informed that it is unable to forecast profits on a GAAP basis at this time, owing to uncertainties related to the timing of costs to be incurred for reorganizing the Calvin Klein business and the actuarial gain or loss on its retirement plans due to volatile financial markets.

Additionally, PVH Corp currently projects revenues for the fourth quarter and fiscal 2018 to be not less than $2.40 billion and $9.57 billion, respectively. Notably, this guidance is ahead of the company’s plan. The company reported revenues of $2.5 billion and $8.9 billion in the year-ago quarter and the last fiscal year, respectively.

Calvin Klein’s Restructuring Plans

Concurrently, PVH Corp’s wholly-owned subsidiary — Calvin Klein — announced alternatives to cater to changing consumer preferences in the growing fashion and retail industry. Being one of the key and most profitable brands of PVH Corp, 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.

The company plans to relaunch the CALVIN KLEIN 205W39NYC collection with a modern name and creative fashionable approach in order to connect directly to the CALVIN KLEIN brands’ family. Notably, some issues in the CALVIN KLEIN 205W39NYC collection and the Calvin Klein Jeans business mainly weighed on the brand’s performance in third-quarter fiscal 2018. With the aforementioned restructuring, the company expects to recoup the issues at this collection. Moreover, as part of a recent review of its omni-channel strategy, the company plans to close its namesake store in Madison Avenue, New York, by spring this year.

In order to adopt the first-digital model, the company introduced the position of Consumer Marketing Organization (CMO) to assess changing consumer demands and focus on areas like Consumer Engagement and Shopper Experience, assisted by a specialized team.

Further, the company’s efforts to streamline North America business will include the consolidation of the men’s Calvin Klein Sportswear and Calvin Klein Jeans businesses. The brand’s retail and e-commerce associates will be integrated to craft a more unique omni-channel approach.

PVH Corp expects to incur pre-tax expenses of roughly $120 million in the next 12 months, due to the restructuring of the Calvin Klein brand. This will mainly include inventory markdowns, severance and asset impairments as well as lease and other contract termination costs. Cash outflows in connection with these pre-tax costs are projected to be nearly $60 million.

We note that the aforementioned non-GAAP earnings projection excludes pre-tax expenses, with regard to the restructuring of the Calvin Klein business.

A glimpse of PVH Corp’s price performance shows us that the stock has lost 21.5% in the past three months compared with the industry’s 9.9% decline.


PVH Corp currently carries a Zacks Rank #3 (Hold).

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