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PVH Stock Hurt by Soft Calvin Klein Unit: Can It Bounce Back?

Zacks Equity Research

PVH Corp PVH is in the doldrums mainly due to persistent softness at the company’s Calvin Klein business for quite some time now. Furthermore, management issued a bleak earnings view for the second quarter and trimmed guidance for fiscal 2019, which weighed on investor sentiment.

Consequently, shares of this renowned apparel designer have lost 27.2% in the past three months, much wider than the industry’s 1% decline.



Let’s Delve Deep

Issues related to the Calvin Klein’s Jeans business owing to fashion miss are the primary reason behind the segment’s dull performance. While revenues at Calvin Klein remained flat in first-quarter fiscal 2019, the segment’s International revenues fell 2% year over year. Robust growth in Europe was more than offset by the adverse impacts of currency and weakness in China. Moreover, International comparable-store sales (comps) declined 4%. Further, the segment’s North America revenues were somewhat hurt by a 5% fall in comps.

Although PVH Corp has been taking initiatives to aid growth at Calvin Klein, this will take time. For second-quarter fiscal 2019, the company expects revenues at this unit to decline 4% (down 2% at constant currency).

Despite robust earnings in first-quarter fiscal 2019, management trimmed its bottom-line view for the fiscal year. Adjusted earnings per share are now envisioned in the band of $10.20-$10.30, down from the earlier guided range of $10.30-$10.40. For the fiscal second quarter, adjusted earnings are expected to be $1.85-$1.90 per share, down from $2.18 earned in the year-ago quarter.

In addition, PVH Corp has been witnessing adverse impacts of foreign currency translations. In fact, currency headwinds are likely to weigh on earnings throughout fiscal 2019. Unfavorable currency rate is now expected to mar earnings by nearly 32 cents per share in fiscal 2019, up from 22 cents estimated earlier. Notably, the company’s adjusted earnings guidance includes an anticipated adverse impact of nearly 6 cents from foreign currency in the fiscal second quarter.

Restructuring Plans & Brand Strength

Earlier, management had introduced Calvin Klein’s restructuring plans, which coupled with PVH Corp’s brand strength appear encouraging.

Notably, Calvin Klein’s strategy unfolds three key initiatives that include the redesigning of the CALVIN KLEIN 205W39NYC business, adoption of the digital-first model and streamlining of its North America business.

The company plans to relaunch the CALVIN KLEIN 205W39NYC collection, with a modern name and creative fashionable approach to connect directly to the Calvin Klein brands’ family. This launch is likely to help PVH Corp recoup the issues at this collection.

In order to adopt the first-digital model, the company introduced the position of Consumer Marketing Organization (CMO) to assess changing consumer demands and focus on areas like Consumer Engagement and Shopper Experience, assisted by a specialized team. Further, streamlining the North America business will include the consolidation of the men’s Calvin Klein Sportswear and Calvin Klein Jeans businesses. The brand’s retail and e-commerce associates will be integrated to craft a more unique omni-channel approach.

These apart, PVH Corp’s efforts to brand management facilitate each of its brands to develop further through effective marketing strategies, financial control and operating leverage. Impressively, its Tommy Hilfiger brand is experiencing strong momentum and market share gains since the last few quarters. In fact, the brand’s performance remained sturdy in first-quarter fiscal 2019 backed by a stellar performance in Europe and comps growth of 9%.

PVH Corp currently carries a Zacks Rank #3 (Hold).

3 Better-Ranked Stocks in the Same Space

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Guess', Inc. GES, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 17.5%.

lululemon athletica inc. LULU currently carries a Zacks Rank #2 (Buy). Further, the company has an impressive long-term earnings growth rate of 18.4%.

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