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PVH Corp's (PVH) Gazal Stake Buy Out to Drive FY19 Earnings

Zacks Equity Research

PVH Corporation PVH successfully sealed its previously announced acquisition deal to buy an aggregate 78% stakes in Gazal Corporation Limited that it did not own, through its newly formed subsidiary.

This acquisition is in sync with the company’s policy of expanding global presence by attaining direct control over its brands’ regionally licensed businesses. The acquisition also places it well to capture increasing opportunities for growth in Australia and New Zealand.

Gazal has been a long-standing partner for PVH Corp in Australia through the joint venture (JV) — PVH Brands Australia Pty Limited — which started in 2014. As part of the acquisition deal, PVH Corp acquired all stakes in the aforementioned JV, which generated about A$260 million in revenues for the trailing 12 months as of July 2018. This JV holds licenses for PVH Corp’s leading brands — including  CALVIN KLEIN, TOMMY HILFIGER and Van Heusen brands as well as the Pierre Cardin, Bracks and Nancy Ganz brands in Australia, New Zealand and other parts of Oceania.

As part of the deal, four key members of Gazal’s management and the JV signed employment agreements with PVH Corp and are likely to serve their roles for at least two years. These members also exchanged about 25% of their existing Gazal equity stakes to subscribe for nearly 6% interest in PVH Corp’s newly formed subsidiary, which will be the parent company of the acquirer.

This acquisition is likely to materially boost PVH Corp’s earnings per share on a GAAP basis in 2019 through a non-cash gain to write up its equity investment in Gazal and the JV to fair value. Excluding the non-cash gain, the transaction will also slightly be accretive to PVH Corp’s 2019 non-GAAP earnings.

PVH Corp remains encouraged by the prospects in fiscal 2019. As already stated, it expects fiscal 2019 revenues to benefit from acquisitions of stakes in Gazal. Furthermore, the acquisition of Tommy Hilfiger’s retail businesses in Hong Kong, and certain other countries in Central and Southeast Asia from Dickson Concepts (International) Limited in second-quarter fiscal 2019 should aid results. These acquisitions are likely to augment revenues by $150 million in fiscal 2019.

Consequently, the company expects revenue growth of 3% (up 5% in constant currency) in fiscal 2019. Brand-wise, revenues are anticipated to increase roughly 6% at Tommy Hilfiger. Further, revenues are expected to remain flat at Calvin Klein and Heritage Brands. At Tommy Hilfiger and Calvin Klein, revenues are likely to grow respective 9% and 2% on a constant-currency basis. Further, it envisions GAAP earnings of $9.05-$9.15 per share in fiscal 2019.

Notably, the company’s shares have been gaining significantly from its initiatives to expand business as well as strength in brands. This Zacks Rank #3 (Hold) stock has rallied 15.1% year to date, outpacing the industry’s growth of 13.9%.



Better-Ranked Textile – Apparel Stocks

Crocs, Inc. CROX presently has an expected long-term earnings growth rate of 15% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here .

lululemon athletica inc. LULU currently has an expected long-term earnings growth rate of 18.4% and a Zacks Rank #2 (Buy).

Columbia Sportswear Company COLM, also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 8.9%.

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