While PVH’s Q4 Earnings Beat Estimates, 2013 Forecasts Disappoint

In What's New, Industry News by Jeff Prine

Calvin Klein Spring '13New York—PVH Corp., owner of Calvin Klein and Tommy Hilfiger, reported today better-than-expected fourth quarter profits. But shares in the company dropped in early trading after PVH forecast that its first quarter and 2013 earnings would be lower than expected due to costs related to its newly acquired Warnaco business, which makes Calvin Klein jeans and underwear.

For the quarter ended Feb. 3, PVH posted a 34% increase in its net income to $1.60 a share compared with $1.19 a share a year ago—an increase driven by strong revenue and improved margins. Excluding a favorable impact from a change in accounting methods for its retirement plans, adjusted earnings were $1.54 a share, above PVH’s own forecast for $1.48 to $1.49 a share and ahead of analysts’ average estimate for $1.50 a share.

Net revenue rose 7% to $1.64 billion, better than the $1.59 billion analysts’ estimate. While PVH credited increases at its Tommy Hilfiger and Calvin Klein division for the revenue growth, there was a 3% negative impact due to its exit from the IZOD women’s and Timberland wholesale sportswear business as well as foreign currency translations.

During the quarter, PVH’s adjusted operating profit surged 38.4% to $180.3 million and operating margin grew grew 250 basis points to 11% compared to 8.5% in the year-ago period.

By division, Tommy Hilfiger posted a 9% increase in sales to $891.1 million, driven by an 11% increase in North America and an 8% increase in international. Operating profit for the division grew 45% as a result of increased sales and improved martins driven by higher average unit retail selling price and a decline in production costs.

Stumble With Its Warnaco Group Acquisition

At Calvin Klein sales grew 14% to $317.4 million primarily driven by improved sales in North America along with store expansion offset by a 2% decline in comparable store sales.

However at its Heritage Brands division, sales dropped 2% to $427.7 million due to negative impact related to the exit from the IZOD women’s and Timberland wholesale sportswear businesses. Excluding the impact of exited businesses, revenue for the Heritage Brands business increased 4%, due principally to strong growth in wholesale sportswear businesses.

Although its fourth quarter earnings report was unexpectedly strong, PVH’s first quarter and full year 2013 forecast was unexpectedly disappointing. PVH expects fiscal 2013 total revenue to be $8.2 billion with the new Warnaco business contributing approximately $2.15 billion. Nonetheless, PVH now projects that due to additional investments in integrating Warnaco, it expects only $25 million instead of previously estimate of $50 million to benefit the company in 2013. As a result of the acquisition, PVH expects its fiscal 2013 earnings to be diluted by 25 cents a share.

So now PVH expects fiscal 2013 earnings to be $7 a share on revenue of $8.2 billion. Analysts’ consensus forecast earnings of $7.44 a share on revenue of $7.9 billion.

with first quarter earnings at $1.33 a share on sales of $1.9 billion.

According to Jim Cramer, analysts at CNBC’s “Mad Money,” Manny Chirico, PVH’s chief executive, told him that the trouble was that many of the Calvin Klein businesses “just were doing that well, particularly jeans in the U.S., Europe and Korea, the latter being especially weak.”

First quarter earnings will be relatively flat with last year’s $1.33 a share on sales of $1.9 billion. Analysts, however, expected adjusted earnings of $1.52 a share on $1.99 billion in sales.

Eliminating 900 to 1,000 Jobs

“2013 will be a transitional year for PVH, during which we will build the foundation for long-term sustainable growth for our businesses across the world,” said Chirico. “I believe we will emerge stronger and the investments we will make this year will help drive the Calvin Klein business going forward. Further, we believe they will pave the way for enhanced profitability and stockholder value, translating into expected earnings per share growth in excess of 15% per year for 2014 and beyond.”

In other recent news at PVH, it was announced that between 900 to 1,000 jobs would be eliminated and some facilities closed as a result of its Warnaco acquisition.

PVH said it would shut Warnaco’s Florence, Italy office, as well as those at Duncansville and Huntingdon, Pennsylvania, New York City, Milford, Connecticut, Hong Kong and other far east locations.

The company also said it may close more facilities and cut jobs in the United States and abroad.

PVH closed its $2.8 billion cash-and-stock acquisition of Warnaco in February.


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