Despite ongoing supply chain woes, PVH Corp.’s first quarter net income increased 33.5 percent to $133.1 million.
In a Nutshell: PVH Corp., owner of the Calvin Klein and Tommy Hilfiger brands, in reporting first quarter financial results on Wednesday, projected 2022 revenue to increase 1 percent to 2 percent compared to 2021, reflecting 2 percent reductions resulting from exiting its Heritage Brands retail business and Russia’s war in Ukraine.
Operating margin is projected to be approximately 10 percent, while earnings per share (EPS) is forecast to be about $9.20 compared to $13.25 in 2021. The 2022 EPS outlook includes the estimated negative impacts of around 85 cents per share related to foreign currency translation, primarily due to the stronger dollar, and approximately 60 cents per share related to the war in Ukraine.
For the second quarter, revenue is expected to decrease about 4 percent to 3 percent compared to the prior-year period reflecting 4 percent reduction due to the exit from the Heritage Brands retail business and a 2 percent falloff as a result of the war in Ukraine.
EPS is projected to be around $2.20 compared to $2.51 in the second quarter of 2021. The second quarter EPS outlook includes the estimated negative impacts of approximately 25 cents per share related to foreign currency translation, primarily due to the stronger dollar, and 17 cents per share related to the war in Ukraine.
PVH said it was providing the 2022 outlook despite the significant uncertainty due to the war in Ukraine and its broader macroeconomic implications, inflationary pressures globally and the continued uncertainty due to the Covid-19 pandemic. In addition, supply chain and logistics disruptions globally have resulted in and are expected to continue to result in delivery delays to wholesale customers and delayed inventory availability for the company’s stores and digital commerce businesses. The outlook assumes no material worsening of current conditions.
“For the first quarter, we delivered both revenue and EPS above our guidance,” Zac Coughlin, chief financial officer, said. “Through the PVH+ Plan, we are leaning into and flexing our business to accelerate growth and realize efficiencies–balanced across our regions and brands–to drive strong profitability, significant cash flow and attractive returns for our shareholders.”
At its April Investor Day, the company introduced the PVH+ Plan, its multiyear strategic plan to drive brand, digital and direct-to-consumer-led growth to accelerate financial performance. The PVH+ Plan builds on the core strengths of PVH and connects Calvin Klein and Tommy Hilfiger closer to the consumer through five key growth drivers.
They are to win with product, win with consumer engagement, win in the digitally led marketplace, develop a demand- and data-driven operating model, and drive efficiencies and invest in growth. These five foundational drivers apply to each of the company’s businesses and are activated in the regions to meet the unique expectations of our consumers around the world and deliver long-term sustainable profitable growth.
Inventory in the quarter decreased 4 percent compared to the prior-year period, primarily due to changes in foreign currency exchange rates, as well as the exit from the Heritage Brands retail business. In-transit inventory was up 10 percent, primarily due to ongoing supply chain and logistics disruptions.
Sales: Revenue for the first quarter ended May 1 increased 2 percent to $2.12 billion compared to the prior-year period, exceeding guidance, and reflected continued momentum in Europe.
It also included a 5 percent reduction resulting from the exit from the Heritage Brands retail business and a 1 percent reduction resulting from the war in Ukraine, including the company’s decision to temporarily close its stores and pause commercial activities in Russia and Belarus, as well as a reduction in wholesale shipments to Ukraine.
Direct-to-consumer revenue rose 4 percent compared to the prior year, inclusive of a 6 percent reduction from the exit of the Heritage Brands Retail business. Directly operated digital commerce decreased 14 percent compared to the “exceptionally strong performance” of 66 percent growth in the prior-year period attributable, in part, to temporary store closures then.
Calvin Klein revenue rose 13 compared to the prior-year period, including a 7 percent hike in Calvin Klein International and a 26 percent gain in Calvin Klein North America.
Tommy Hilfiger revenue increased 2 percent year over year, including a 2 percent decrease in Tommy Hilfiger International and a 15 percent increase in Tommy Hilfiger North America.
Earnings: Net income in the quarter increased 33.5 percent to $133.1 million from $99.7 million last year.
First quarter EPS of $1.94 exceeded guidance of $1.55 to $1.60. Gross margin was 58.4 percent compared to 59.1 percent in the 2021 period, as more full price selling was more than offset by higher freight costs, including an increase in air freight to mitigate ongoing supply chain and logistics delays.
CEO’s Take: Stefan Larsson, CEO, said: “We are pleased with our first quarter performance in which we delivered strong underlying top-line growth and beat our guidance. This performance is just the beginning of our multi-year journey to execute the PVH+ Plan–our strategic growth plan that we unveiled at our recent Investor Day. The plan is centered around winning with the consumer through our brand-focused, direct-to-consumer and digitally led approach across each of our regions to unlock the full potential of our two global iconic brands, Calvin Klein and Tommy Hilfiger.”
“Looking ahead, we are encouraged by the sustained momentum of our overall underlying trends and remain confident in our full year outlook,” Larsson added. “While we are mindful of and continue to navigate through the global macroeconomic headwinds, we are proactively managing our business to deliver on our commitments, drive growth and create long-term value.”