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PVH Corp (PVH) Q3 Earnings Beat, Stock Dips on Revenue Miss

PVH Corporation PVH reported mixed third-quarter fiscal 2023 results, wherein earnings topped estimates, while sales missed. The bottom and top lines improved year over year. Results gained from the strong execution of the PVH+ Plan, which led to a strong gross margin expansion and double-digit adjusted earnings per share growth in the fiscal third quarter. Additionally, the company witnessed continued momentum in its core brands — Calvin Klein and Tommy Hilfiger.

PVH shares declined 4.4% in the after-hours trading session on Nov 29. The decrease can be attributed to lower-than-expected sales in the fiscal third quarter. Additionally, the company provided soft sales guidance for fourth-quarter fiscal 2023 and lowered its sales view for fiscal 2023.

We note that shares of the Zacks Rank #2 (Buy) company have gained 9.5% in the past three months compared with the industry's growth of 6.2%.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Q3 Highlights

PVH Corp reported adjusted earnings of $2.90 per share, up 11.5% from the year-ago quarter's $2.60. The bottom line also beat the Zacks Consensus Estimate of $2.72.

In the fiscal third quarter, revenues rose 4% year over year (up 1% on a constant currency) to $2,363 million but missed the consensus mark of $2,390 million. This was mainly driven by growth in the direct-to-consumer businesses across all regions.

The company reported 1% year-over-year revenue growth, on a constant-currency basis, in the international business despite highly challenging macroeconomic conditions in Europe. In North America, revenues improved 2% year over year for the Tommy Hilfiger and Calvin Klein brand businesses on a combined basis.

PVH Corp. Price, Consensus and EPS Surprise

 

PVH Corp. Price, Consensus and EPS Surprise
PVH Corp. Price, Consensus and EPS Surprise

PVH Corp. price-consensus-eps-surprise-chart | PVH Corp. Quote

Direct-to-consumer revenues grew 8% year over year (up 6% in constant currency) in the fiscal third quarter, whereas Wholesale revenues were up 1% year over year (down 3% in constant currency). Revenues for the wholesale business were affected by the cautious approach adopted by the wholesale customers.

Revenues in the digital channel increased 13% year over year (up 8% in constant currency). Total digital penetration at the end of the fiscal third quarter was 20% as a percentage of total revenues. Growth in the digital business stemmed from gains in owned and operated digital commerce revenues. Additionally, growth in its wholesale sales to traditional retailers’ ecommerce businesses and pure players aided digital revenues.

The company's gross profit of $1,339.4 million improved 5.1% year over year. The gross margin expanded 80 bps to 56.7% on gains from lower freight costs, and a favorable shift in regional and channel mix, partly offset by elevated product costs. The higher product costs included a 100-bps impact of inventory costs due to adverse currency rates. We estimated the fiscal third-quarter gross margin to expand 110 bps year over year to 57% for the fiscal third quarter.

Selling, general and administrative expenses rose 3.6% year over year to $1,123.8 million. Our model had predicted fiscal third-quarter SG&A expenses to increase 6% year over year to $1,132.4 million.

The company’s adjusted earnings before interest and taxes (EBIT) totaled $249 million, up 13.2% from the prior-year quarter. Notably, our estimate was pegged at $239.6 million, reflecting 9% growth. Robust EBIT growth was driven by top-line growth in the quarter and gross margin expansion.

The company is on track with its disciplined cost-management actions, which are resulting in cost efficiencies. Additionally, the company’s take on expense management supports its target of making investments to aid its strategic initiatives.

Segmental Analysis

PVH Corp reports financial results under three segments — Calvin Klein, Tommy Hilfiger and Heritage Brands.

Revenues for the Calvin Klein segment rose 6% year over year (up 3% in constant currency). The rise was aided by 11% sales growth (up 6% in constant currency) at Calvin Klein International, partly offset by a 1% decline at Calvin Klein North America due to a decline in the wholesale business.

Revenues for the Tommy Hilfiger brand grew 4% year over year (up 1% in constant currency) in the reported quarter. Revenue growth was backed by a 3% rise (down 3% in constant currency) in Tommy Hilfiger International and 6% growth in Tommy Hilfiger North America.

The Heritage Brands segment's revenues plunged 11% year over year in the quarter under review.

Our model predicted the Tommy Hilfiger brand to register sales growth of 6.8% in the fiscal third quarter. Sales for Calvin Klein were anticipated to increase 3.2% year over year, while Heritage Brands was expected to deliver a sales decline of 2.4%.

Other Financial Details

PVH Corp ended the fiscal third quarter with cash and cash equivalents of $357.6 million, long-term debt of $1,571.3 million, and stockholders' equity of $5,054.3 million.

In the fiscal third quarter, the company repurchased 0.9 million shares for $68 million. This brings share repurchases for the first nine months ended Oct 29, 2023, to 3.2 million for $268 million.

In November 2023, the company completed the planned sale of the Heritage Brands intimate apparel business. It expects to use $150 million of net proceeds from the sale for share repurchases. Consequently, PVH raised its share buyback plan for fiscal 2023 to $550 million from the prior target of $400 million.

Outlook

Driven by the strong performance in the first three quarters of fiscal 2023, PVH raised its EPS guidance for fiscal 2023. However, it slashed the sales view for fiscal 2023. It also outlined expectations for fourth-quarter fiscal 2023.

For fiscal 2023, revenues are anticipated to increase 1% year over year (up 1% in constant currency), compared with 3-4% growth (up 2-3% in constant currency) stated earlier. Sales for fiscal 2023 are expected to include a gain of less than 1% from the 53rd week and a negative impact of less than 1% related to the sale of the Heritage Brands intimate apparel business.

The company expects GAAP earnings per share of $9.75, up from the earlier stated $9.60. Adjusted earnings are envisioned to be $10.45, up from the prior mentioned $10.35. Meanwhile, it reported $3.03 on a GAAP basis and $8.97 on an adjusted basis last year. Both guidance includes a positive impact of 10 cents from favorable currency. The company also expects to achieve a double-digit adjusted EBIT margin in fiscal 2023.

PVH anticipates interest expenses of $93 million compared with $100 million mentioned earlier. The company reported interest expenses of $83 million in the prior-year quarter. The increase in interest expenses is likely to result from higher interest rates. The effective tax rate is expected to be 22%.

For fourth-quarter fiscal 2023, management anticipates a revenue decline of 3-4% on both reported and constant-currency basis. The company expects the gain from the 53rd week to be fully offset by revenue reduction due to the sale of the Heritage Brands intimate apparel business.

Earnings per share, on a GAAP basis, is expected to be $3.48 compared with the $2.18 reported in the year-ago quarter. Adjusted earnings are anticipated to be $3.45 versus the $2.38 earned in the prior-year quarter. This view includes favorable currency impacts of 3 cents per share.

Interest expenses for the fiscal fourth quarter are estimated to be $25 million compared with $22 million in the year-ago period. The effective tax rate is expected to be 22%.

Stocks to Consider

Some other top-ranked companies in the Consumer Discretionary sector are Rocky Brands RCKY, NIKE Inc. NKE and Skechers SKX.

Rocky Brands, which is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well-recognized brand names, sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Rocky Brands’ 2023 sales and EPS indicates year-over-year declines of 24.5% and 46.8%, respectively. The company has a trailing four-quarter earnings surprise of 17.2%, on average.

NIKE, which is engaged in the business of designing, developing, and marketing athletic footwear, apparel, equipment and accessories, and services for men, women and children worldwide, currently has a Zacks Rank #2. NKE has a trailing four-quarter earnings surprise of 27.1%, on average.

The Zacks Consensus Estimate for NKE’s fiscal 2024 sales and EPS indicates increases of 3.8% and 15.8%, respectively, from the year-ago period’s reported levels.

Skechers, which designs, develops, markets, and distributes footwear for men, women, and children in the United States and overseas, presently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Skechers’ current financial-year sales and earnings suggests growth of 8.2% and 44.5% from the year-ago period’s reported figure. SKX has a trailing four-quarter earnings surprise of 50.3%, on average.

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