It has been about a month since the last earnings report for PVH (PVH). Shares have added about 10.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PVH due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
PVH Corp Beats on Q1 Earnings Estimates
PVH Corp delivered mixed first-quarter fiscal 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues marginally missed the same. With this, the company delivered 20th straight quarter of bottom-line beat.
However, management provided dull earnings view for both second-quarter and fiscal 2019. Adjusted earnings per share (EPS) are envisioned in the band of $10.20-$10.30 for the fiscal year, down from the earlier guided range of $10.30-$10.40. Additionally, foreign currency remains a headwind in fiscal 2019. Both GAAP and non-GAAP earnings projections include negative impacts of roughly 32 cents per share.
For the second quarter, adjusted EPS is expected to be $1.85-$1.90, down from $2.18 in the year-ago quarter. Management stated that the tough and volatile macroeconomic environment continued into the fiscal second quarter along with soft U.S. and China retail environment.
PVH Corp’s adjusted EPS came in at $2.46, which included adverse currency impacts of 15 cents. The bottom line grew nearly 4.2% year over year and surpassed the Zacks Consensus Estimate of $2.44. The metric also outshined the company’s guided range of $2.40-$2.45.
On a GAAP basis, the company delivered earnings of $1.08 per share, down 52.8% from $2.29 registered in the year-ago quarter. However, the reported figure significantly outperformed management’s guidance of 25-30 cents.
In the fiscal first quarter, revenues inched up 2% to $2,356.3 million driven by growth at its Tommy Hilfiger and Heritage Brands segments, offset by flat revenues at Calvin Klein. On a constant-currency (cc) basis, revenues registered an improvement of 6%. However, the top line marginally missed the Zacks Consensus Estimate of $2,368 million.
The company’s total gross profit inched up 0.4% to $1,295.9 million, while gross margin contracted 80 basis points (bps) to 55%. Nonetheless, adjusted EBIT was up 6.4% to $267 million including adverse currency impacts of nearly $14 million. Adjusted EBIT growth was mainly backed by improvements in the Calvin Klein and Tommy Hilfiger businesses.
PVH Corp reports its financial results under three segments — Calvin Klein, Tommy Hilfiger and Heritage Brands.
Revenues at Calvin Klein remained flat year over year at $890 million (up 4% at cc). The segment’s International revenues fell 2% to $466 million (up 5% at cc). Robust growth in Europe was more than offset by the adverse impacts of currency and weakness in China. Also, International comparable store sales (comps) declined 4%. However, the segment’s North America revenues were up 2% to $424 million (up 3% at cc), owing to growth at its wholesale business, somewhat offset by a 5% fall in comps.
Revenues at the Tommy Hilfiger segment improved 4% to $1.1 billion (up 9% at cc). International revenues at the segment increased 4% to $680 million (up 12% at cc). The improvement was driven by a stellar performance in Europe and comps growth of 9%. Additionally, the segment’s North America business witnessed 3% revenue growth to $372 million (up 3% at cc), backed by growth in its wholesale business. However, the upside was somewhat offset by a 4% comps decline.
The Heritage Brands segment’s revenues rose 1% year over year to $415 million driven by growth at the wholesale business. However, comps at the segment declined 6%.
In first-quarter fiscal 2019, PVH Corp bought back roughly 500,000 shares for $61 million, under its $2-billion buyback authorization, through Jun 3, 2023. Since its inception, the company has repurchased nearly 9.5 million shares for $1.1 billion as part of its commitment to return value to its shareholders.
Management’s guidance for fiscal 2019 includes the assumption that two of the company’s pending buyouts — Gazal Corporation Limited and the TH CSAP — will be completed in second-quarter fiscal 2019. Backed by these businesses, revenues for the fiscal year are projected to increase by almost $150 million.
During fiscal 2019, the company projects revenues to increase about 3% (up 5% at cc) compared with 4% growth predicted earlier. 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 a respective 9% and 2% at cc. Earlier, management expected revenues to increase roughly 6%, 2% and 3% for Tommy Hilfiger, Calvin Klein and Heritage Brands businesses, respectively. At cc, the metric at Tommy Hilfiger and Calvin Klein was projected to grow 8% and 3%, respectively.
Net interest expenses are expected to grow nearly $120 million, up from $116 million incurred in fiscal 2018. Further, adjusted effective tax rate is projected in the band of 14-15%.
GAAP EPS is projected to be $9.05-$9.15 compared with the previous projection of $8.90-$9.00. In fiscal 2018, PVH Corp reported GAAP EPS of $9.65.
For second-quarter fiscal 2019, the company expects total revenues to remain flat year over year (up 2% at cc). Brand-wise, revenues are expected to increase 3% (up 6% at cc) at Tommy Hilfiger. However, the metric is likely to decline 4% (down 2% at cc) at Calvin Klein, and 2% at Heritage Brands.
Net interest expenses are anticipated to decline to roughly $28 million in the fiscal second quarter. The adjusted effective tax rate for the quarter is anticipated in the range of 21.5-22.5%.
On a GAAP basis, the company envisions EPS in the range of $2.75-2.80 versus $2.12 in the prior-year quarter. Notably, GAAP and adjusted earnings guidance include an anticipated adverse impact of nearly 6 cents from foreign currency.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -21.2% due to these changes.
At this time, PVH has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise PVH has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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