PVH Corporation
(PVH) has again posted better-than-expected quarterly results. The
company's third-quarter fiscal 2013 adjusted earnings of $2.30 per
share beat its own guidance of $2.25 and the Zacks Consensus
Estimate of $2.26. The upside was primarily driven by strong
revenue growth from the acquisition of The Warnaco Group, Inc. and
improved margins.
However, earnings fell 3.4% from
the year-ago comparable quarter figure of $2.38 per share as the
benefit of strong revenue growth from The Warnaco Group acquisition
was offset by rise in input and operating costs, higher effective
tax rate and a 12% rise in the number of outstanding shares.
Despite posting
better-than-expected quarterly results, PVH Corp. has slightly
lowered its revenue guidance while reaffirming the earnings
guidance, which is much below the consensus estimate. This spread
negative sentiment among investors and led the company’s share
price to fall 1.3% in the after-hours trading session.
Further, including one-time items
such as acquisition, integration and restructuring costs related to
The Warnaco Group and loss on sale of G. H. Bass & Co., PVH
Corp. reported earnings of $2.37 per share, as against $2.27 earned
in the comparable year-ago period.
Quarter in
Detail
In the quarter, PVH Corp.’s total
revenue rose 37.5% to $2,259.1 million from $1,642.8 million in the
prior-year quarter. The year-over-year increase in revenues was
attributable to robust sales performances across all segments of
the company. Moreover, quarterly revenues surpassed the Zacks
Consensus Estimate of $2,222.0 million.
PVH Corp.’s adjusted operating
profit rose 20.2% to $305.5 million from $254.1 million in the
year-ago comparable quarter. However, the company’s operating
margin contracted 200 basis points (bps) to 13.5% from the year-ago
period. The year-over-year decline in operating margin was
primarily due to lower gross margin and increased selling, general
and administrative (SG&A) expenses as a percentage of sales,
which more than offset the positive impact of The Warnaco Group
acquisition.
Segment
analysis
From the beginning of first-quarter
fiscal 2013, PVH Corp. has decided to report its financial results
under three business segments: a) Calvin Klein, which includes
Calvin Klein North America and Calvin Klein International segments;
b) Tommy Hilfiger consisting of Tommy Hilfiger North America and
Tommy Hilfiger International businesses; and c) Heritage Brands,
which comprises Heritage Brands Wholesale and Heritage Brands
Retail segments.
Calvin Klein’s
revenues increased more than twofold to $799.7 million from $319.6
million in the year-ago quarter. This year-over-year revenue growth
was driven by The Warnaco Group acquisition and a 3% rise in
comparable-store sales (comps) at PVH Corp.’s Calvin Klein North
America retail business. However, comps at the company’s Calvin
Klein International segment dropped 1%.
The segment’s adjusted operating
profit rose 56.1% to $144.2 million from $92.4 million, primarily
driven by The Warnaco Group acquisition, strong sales at Calvin
Klein’s North America segment and an improved gross profit
resulting from higher average unit retail selling price.
Revenues at the company’s
Tommy Hilfiger segment increased 10.4% to $920.7
million from $833.6 million in the year-ago period due to sales
growth of 10% in the North American business and 11% in
international business. The segment’s North American business
mainly benefited from a 3% rise in retail comps, along with square
footage expansion and double-digit sales growth in the wholesale
sportswear business. Further, double-digit sales growth in the
European wholesale business, 4% comps growth in the European retail
business and retail square footage expansion drove the segment’s
international revenues.
The segment’s adjusted operating
profit grew 6.1% to $143.2 million from $135.0 million in the third
quarter of fiscal 2012. The increased operating profit was due to
the above-mentioned reasons.
The Heritage
Brands segment’s revenues increased 10.1% year over year
to $538.8 million from $489.5 million in third-quarter fiscal 2012.
The rise was primarily driven by the newly acquired Speedo swim
product and Warner’s and Olga women’s intimate apparel businesses,
partially offset by negative impact due to the company’s exit from
Izod women’s wholesale sportswear business and a 3% decline in
comps.
However, adjusted operating profit
fell 11.7% year over year to $41.7 million, due to revenue decline
for the pre-acquisition of Heritage Brands businesses and lower
gross margins experienced in the Bass retail business.
Balance
Sheet
The company ended the quarter with
$542.5 million of cash and cash equivalents compared with $276.6
million at the end of third quarter fiscal 2012. PVH Corp.’s
long-term debt excluding current maturities increased over twofold
to $4,174.6 million primarily due to The Warnaco Group acquisition.
The company’s shareholder equity was $4,335.6 million at the end of
third-quarter fiscal 2013.
Outlook
Despite posting
better-than-expected third-quarter results, PVH Corp. remains
cautious about the remaining period of fiscal 2013 since it
anticipates intense competition and promotion by retailers in the
holiday season. Therefore, the company has lowered the fiscal 2013
revenue guidance to $8.24 billion from $8.25 billion projected
earlier.
The company’s Calvin Klein, Tommy
Hilfiger and Heritage Brands are expected to contribute $2.79
billion, $3.44 billion and $2.01 billion, respectively toward total
revenue. Moreover, the company still expects fiscal 2013 adjusted
earnings to come in at $7.00 per share. Currently, the Zacks
Consensus Estimate stands at $7.07 per share, which may see
revision in the coming days.
PVH Corp. intends to repay about
$450 million of debt and projects total interest expense of $190
million in fiscal 2013. The tax rate is likely to be nearly
26.0%.
For fourth-quarter fiscal 2013, the
company expects total revenue of $2.08 billion with Calvin Klein,
Tommy Hilfiger and Heritage Brands contributing approximately $680
million, $910 million and $490 million, respectively.
The company anticipates interest
expense of nearly $50 million and tax rate of approximately 27.0%.
Moreover, PVH Corp. intends to make term loan payment of about $250
million in the quarter.
Based on the above-mentioned
assumption, PVH Corp. expects fourth-quarter fiscal 2013 adjusted
earnings to come in at approximately $1.40 per share. Currently,
the Zacks Consensus Estimate is $1.54 per share, which may see
revision in coming days.
Other Stocks to
Consider
Currently, PVH Corp. carries a
Zacks Rank #4 (Sell). Some better-ranked stocks in the apparel
retail industry include Columbia Sportswear Co.
(COLM), Michael Kors Holdings Ltd. (KORS) and
Quicksilver Inc. (ZQK). All these have a Zacks
Rank #2 (Buy).
COLUMBIA SPORTS (COLM): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis Report
PVH CORP (PVH): Free Stock Analysis Report
QUIKSILVER INC (ZQK): Free Stock Analysis Report
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