Can PVH Corp's Strategies Help Gain Lost Momentum in 2019?
PVH Corp PVH has lost 32.8% in a year despite the company’s robust financial show for a long time now. The stock has also underperformed the industry that declined 3.6%. Notably, PVH Corp surpassed earnings estimates for the 18th straight quarter when it reported third-quarter fiscal 2018 results. Also, the top line outpaced estimates in 12 of the trailing 14 quarters.
Despite an impressive surprise history, why shares of PVH Corp are plummeting and will the trend reverse in 2019. Let’s find out.
Why Shares are Declining
In third-quarter fiscal 2018, PVH Corp witnessed softness across Calvin Klein, which is one of the company’s most lucrative brands. Weakness in Calvin Klein’s 205 W39 NYC halo business and issues related to its Jeans business due to fashion miss hurt the brand’s results. While Calvin Klein’s comparable-store sales (comps) declined 2%, its EBIT fell 15% year over year.
Management has been striving to fix these issues and expects to witness improvements in the next fiscal year. However, revenues at Calvin Klein are expected to decline 6% (or 3% on a currency-neutral basis) in the final quarter of fiscal 2018 against 23% revenue growth registered in the year-ago quarter.
Soft Calvin Klein business has also dented the company’s overall top line, which lagged estimates for the first time in the last nine quarters. For fourth-quarter fiscal 2018, total revenues are projected to decrease nearly 4%, with 1% decline in constant currency. Also, quarterly revenues are likely to be hurt by roughly $125 million due to reduction of 53rd week and fiscal calendar misalignment.
PVH Corp has also been witnessing sluggish growth at its Heritage Brands division in comparison to its other segments. This has further contributed to decline in shares over the course of a year.
Factors to Aid Growth in 2019
PVH Corp’s Tommy Hilfiger brand remains the company’s key strength as the brand continues to put up spectacular performance worldwide. In the third quarter of fiscal 2018, the brand’s revenues increased 11%, with 13% growth in constant currency. International revenues for the segment were up 16% (19% in constant currency). Improvement in all regions and channels, and comps growth of 13% aided results. Additionally, its North America business witnessed revenue growth of 3%.
For the current fiscal year, Tommy Hilfiger‘s revenues are anticipated to increase about 10% (or 9% on a currency-neutral basis).
Notably, management had raised earnings guidance for fiscal 2018 in each of the three quarters. For fiscal 2018, adjusted earnings per share are envisioned to be $9.33-$9.35, up from $9.20-$9.25 guided previously. This guidance also reflects a sharp increase from $7.94 earned in fiscal 2017.
For the fiscal fourth quarter, adjusted earnings per share are expected to come in at $1.58-$1.60 compared with $1.58 recorded in the year-ago quarter. Notably, the Zacks Consensus Estimate of $1.60 for the impending quarter and $9.36 for fiscal 2018 has moved up 0.6% and 1%, respectively, over the past 30 days.
We expect the company to continue with its earnings potential going forward. This is quite evident from its impressive long-term expected earnings growth rate of 12.7%.
PVH Corp’s efforts to resonate well with the evolving consumer trends and efficient brand management approach should also aid results. Meanwhile, the company’s international business remains sturdy owing to solid performance in Europe and Asia.
Additionally, management has been enriching the digital experiences, with the roll out of ‘Try Before You Buy’ option in association with Wirecard — a global digital financial services provider. This enables online customers to pay within 30 days after the delivery of their ordered products, making it convenient for them to try styles and other attributes.
Bottom Line
We expect the company’s strategies and solid earnings potential to cushion the stock and bring it back on the growth trajectory.
PVH Corp currently has a Zacks Rank #3 (Hold).
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