Calvin Again Lifts PVH in Q4

by MR Magazine Staff

NEW YORK – The Calvin Klein acquisition continues to pay dividends for Phillips-Van Heusen.

PVH reported late Monday double-digit gains in profits and sales for its fourth quarter as its heavier dependence on royalty income and higher-margin businesses, led by Calvin Klein, lifted its margins significantly.

In the three months ended Feb. 4, the firm registered net income of $26.8 million, or $0.47 a diluted share, 16.8% above the $22.9 million, or $0.41, reported during the final quarter of the prior year. The earnings per share in the most recent period were $0.04 above the company’s most recent estimate.

In the earlier quarter, $3.2 million in preferred stock dividends related to the company’s acquisition of the Calvin Klein name reduced net income available to common stockholders to $19.7 million.

Total revenues were up 21.1% to $557 million from $460.1 million. Net sales rose 20.5% to $487.6 million, royalty revenues were up 24.5% to $52 million and advertising and other revenues picked up 28.8% to $17.4 million.

Gross margins were elevated 190 basis points to 50.2% of sales from 48.3% of sales in the 2005 quarter.

The company noted that the margin increase was attributable to the rise in royalties and growth in the higher margin Calvin Klein men’s better sportswear and outlet retail divisions.

Emanuel Chirico, chief executive officer, commented, “The demand for the Calvin Klein brand continues across a growing number of product categories around the globe, reaffirming the strength of this brand. The positive financial impact of the Calvin Klein licensing business, along with a continued earnings increase in our heritage businesses, enabled us to surpass our previous earnings guidance.”

Margins were negatively affected by the company’s planned $29 million increase in advertising of its Calvin Klein, Izod, Van Heusen and Arrow brands. However, Chirico noted that the “decision to invest significantly” was designed to keep the labels in the “forefront of consumers’ minds” and had been well received.

The acquisition of Superba, completed on Jan. 1, didn’t affect fourth-quarter earnings but, according to the CEO, is expected to be “modestly accretive” after integration costs this year.

“This acquisition should serve as a platform for growth in the neckwear arena as we layer on additional brands over time,” he said. PVH has taken neckwear rights for Calvin Klein and Izod in-house since purchasing Superba.

The company said it expects EPS of $0.85 in the first quarter, 15% above the non-GAAP (generally accepted accounting principles) level from last year’s first quarter. Full-year EPS is expected to reach $3.00 to $3.06, 15% to 17% above the non-GAAP level of the just completed year. Costs for the start-up of PVH’s Timberland’s initiative should be $2 million in the first quarter and $8 million in the full year.

Total revenues will be approximately $2.4 billion, PVH estimated.

In the most recent year, net income was $155.2 million, or $2.64, versus $111.7 million, or $1.85. On a non-GAAP basis, EPS increased 39% to $2.62. Sales were up 9% to $1.85 billion from $1.7 billion while total revenues crossed the $2 billion threshold for the first time, rising 9.5% to $2.09 billion from $1.91 billion.