Pvh earnings up in second quarter despite market conditions

by Stephen Garner

PVH Corp delivered better-than-expected second-quarter fiscal 2019 results, however, quarterly results were hurt by soft traffic trends across North America and China. Further, the on-going protests in Hong Kong resulted in a higher promotional environment. Consequently, management trimmed its revenue and earnings per share (EPS) view for fiscal 2019. Also, the current trends, anticipations of a volatile macro and retail landscape, and on-going trade tensions led PVH Corp to revise guidance for the fiscal year.

Overall, second-quarter revenue increased 1 percent to $2.4 billion (increased 3 percent on a constant currency basis) compared to the prior-year period. Revenue in the Tommy Hilfiger business for the quarter increased 8 percent to $1.1 billion, while revenue in the Heritage Brands business for the quarter of $381 million was flat compared to the prior-year period.

At Calvin Klein, revenue for the quarter decreased 6 percent to $873 million compared to the prior-year period, which includes an aggregate net reduction of approximately 2 percent resulting from the winding down of the company’s directly operated women’s jeanswear wholesale business in the U.S. and Canada in connection with the licensing of this business to G-III Apparel Group, the closure of the Calvin Klein 205 W39 NYC brand (formerly Calvin Klein Collection), and the addition of revenue resulting from the Australia acquisition.

The company completed two previously announced acquisitions in the second quarter of 2019. The first was the company’s acquisition of the approximately 78 percent interest in Gazal Corporation Limited that it did not already own, which closed on May 31, 2019. The company and Gazal jointly owned and managed a joint venture, PVH Brands Australia, which licensed and operated businesses under the Tommy Hilfiger, Calvin Klein, and “Van Heusen brands, along with other licensed and owned brands. PVH Australia came under the company’s full control as a result of the Australia acquisition. The second was the company’s acquisition of the Tommy Hilfiger retail business in Central and Southeast Asia from the company’s previous licensee in that market, which closed on July 1, 2019.

In addition, the company entered into agreements in the second quarter of 2019 to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses in conjunction with the company’s plan to consolidate the socks and hosiery business for all company brands in North America in a newly formed joint venture, which is expected to begin operations in December 2019, and to bring in-house the international Calvin Klein socks and hosiery business.

“Although we are pleased with our second quarter and first-half results, we have taken a conservative approach to our second-half outlook,” said Emanuel Chirico, chairman and chief executive officer at PVH. “As such, we lowered our annual revenue and EPS outlook based on our current trends and our expectation that the volatility in the macro-environment, the global retail landscape and the continuing escalation of the trade tensions between the U.S. and China will cause our business to remain under pressure, as will the ongoing impact of protests in Hong Kong.”

Chirico added, “We have great confidence in our diversified business model and the underlying power of Calvin Klein and Tommy Hilfiger, and believe we are positioning our businesses to succeed in the ever-changing consumer landscape. As we execute on our strategic priorities, our ongoing data and digital transformation, together with delivering the best product and consumer experience, should allow us to capture the heart of the consumer. We believe that with our two greatest assets, our people and our brands, we will unlock the long-term brand growth opportunities we see and deliver sustainable long term returns for our stockholders.”