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PVH Raises Guidance Despite Supply Chain Disruptions

PVH Corp., the parent company of Calvin Klein and Tommy Hilfiger posted income and revenue gains fueled by robust international business.

In a Nutshell: PVH said its fiscal year 2021 outlook anticipates higher freight and other logistics costs in the second half of the year to mitigate delays of approximately four to six weeks on average for certain orders, but does not foresee any greater supply chain disruptions beyond that.

The company said it was providing an upgraded 2021 outlook despite the continued uncertainty due to the Covid-19 pandemic globally and, as such, it could be subject to material change. The outlook does not contemplate any significant new temporary store closures, new lockdowns or extensions of current lockdowns beyond what is already known.

PVH expects 2021 revenue and earnings will be impacted by the pandemic in the second half. While the international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels for the remainder of 2021, the North America businesses are expected to remain challenged, as international tourism, which is the source of a significant portion of regional revenue, is not expected to return to any significant level this year.

The company expects gross margin to continue to reflect improvements for the remainder of 2021 compared to 2020 due to less promotional selling and a favorable shift in regional sales mix.

Revenue in 2021 is projected to increase 26 to 28 percent compared to 2020. The company projected that 2021 earnings per share (EPS) will be approximately $8.80 compared to a loss per share of $15.96 in 2020.

Revenue in the third quarter is projected to increase 11 to 13 percent compared to the prior-year period. EPS in the current quarter is projected to be in a range of $3 to $3.05 compared to 98 cents a year earlier.

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Sales: Revenue for the second quarter ended Aug. 1 increased 46 percent to $2.31 billion compared to the prior-year period.

The company experienced strong performance in its international businesses, primarily driven by Europe. The prior-year period was impacted negatively by extensive temporary store closures, as virtually all of the company’s stores and the majority of its wholesale customers’ stores globally were closed during the first month of the second quarter and were operating at significantly reduced capacity for the remainder of the quarter.

Direct-to-consumer revenue for the second quarter increased 19 percent year over year. Digital commerce was flat despite exceptionally strong growth in 2020 due to temporary store closures and occupancy restrictions. In addition, traffic in stores in the current year has significantly improved compared to the prior year due to reopenings and reduced occupancy restrictions. PVH’s stores continued to face some pressure as a result of the pandemic, with certain stores in Europe, Australia and Japan temporarily closed for varying periods of time during the current year’s second quarter.

Wholesale revenue for the second quarter increased 77 percent, driven by strong performance in Europe. In addition, the company experienced a significant increase in its sales to the digital businesses of its traditional and pure play wholesale customers.

The overall sales gain reflects a 41 percent year-over-year increase in the Tommy Hilfiger business, including a 40 percent rise in Tommy Hilfiger International revenue and a 45 percent increase in Tommy Hilfiger North America.

Calvin Klein business revenue rose 56 percent compared to the prior-year quarter, including a 47 percent increase in Calvin Klein International revenue and a 75 percent gain in Calvin Klein North America. Heritage Brands revenue rose 37 percent in the period.

Earnings: Net income in the quarter was $181.8 million compared to a net loss of $51.7 million in the comparable 2020 period.

Earnings before interest and taxes (EBIT) for the quarter was $279 million compared to a loss before interest and taxes of $2 million a year earlier. EPS was $2.51 for the second quarter of 2021 compared to a loss per share of 72 cents in the prior-year period.

Overall gross margin in the second quarter was 57.7 percent as compared to 55.9 percent in the prior-year period, with substantial improvements across all regions, primarily due to less promotional selling. Inventory levels remained lean, down 13 percent year to year.

CEO’s Take: Stefan Larsson, CEO, said: “We delivered another quarter of high-quality growth and strong performance above our guidance. This was driven by disciplined execution of our key strategic priorities, led by Calvin Klein and Tommy Hilfiger, and our international markets, focused on product strength and winning in the marketplace, supercharged by e-commerce. Our international performance was particularly strong, which performed above 2019 pre-pandemic levels. Based on our strong first half results, along with strong underlying trends, we are raising our full-year outlook, which continues to reflect gross margins above 2019 pre-pandemic levels and further improvement in our operating margin.”

“Looking ahead, we are pleased with our recovery, which has been faster than expected across both global brands,” Larsson added. “Our continued execution of our key strategic priorities will drive business performance in the near-term, while also positioning the company for long-term, sustainable profitable growth.”