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Despite Logistics Woes, PVH Projects Fourth Quarter Revenue Rise

Calvin Klein’s and Tommy Hilfiger’s owner saw net income in the third quarter more than quadruple to $279.7 million.

In a Nutshell: PVH Corp. on Wednesday projected revenue in 2021 to increase 27 percent to 28 percent compared to 2020.

The company currently projects that 2021 earnings per share (EPS) will be approximately $10.75 compared to a loss per share of $15.96 in 2020.

PVH said it was providing its updated 2021 outlook despite the continued uncertainty due to the Covid-19 pandemic, including the Omicron variant, and related supply chain and logistics disruptions globally. Supply chain and logistics disruptions have impacted and continue to impact the company, including vessel, container and other transportation shortages, labor shortages and port congestion globally, as well as production delays in some of its key sourcing countries.

These disruptions have resulted in, and could continue to result in, delivery delays to wholesale customers and delayed inventory availability for the company’s stores and digital commerce businesses.

The company reported in-transit inventory levels in the third quarter increased over 50 percent compared to the prior-year period, primarily due to extended lead times from supply chain and logistics disruptions, including U.S. port delays, which drove the above-mentioned shift in the timing of U.S. wholesale shipments from the third quarter into the fourth quarter.

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PVH said it expects revenue and earnings in the fourth quarter of 2021 to continue to be impacted by the pandemic. While the international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels in the fourth quarter 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.

The company expects gross margin to continue to realize improvements in the fourth quarter compared to 2020 due to more full-price selling and a favorable shift in regional sales mix, which are expected to more than offset higher freight costs.

Revenue in the quarter is projected to increase 11 percent to 14 percent compared to the 2020 period. Fourth quarter EPS is expected to be approximately $3.00 compared to a loss per share of 81 cents in the prior-year period.

Sales: Revenue for the third quarter ended Oct. 31 increased 10 percent to $2.33 billion compared to the prior year period, despite worsening logistics disruptions in October, including significant U.S. port delays that resulted in a 4 percent negative impact from an unplanned shift in the timing of U.S. wholesale shipments from the third quarter into the fourth quarter.

Total direct-to-consumer revenue for the quarter was flat compared to the prior-year period, inclusive of a 5 percent reduction from the exit of the Heritage Brands Retail business. Digital commerce increased 21 percent compared to the prior year period on top of strong growth in 2020.

Total wholesale revenue for the period rose 17 percent compared to the prior-year period despite the unplanned shift in the timing of U.S. wholesale shipments and the impact of the Heritage Brands transaction. The company’s sales to the digital businesses of its traditional and pure play wholesale customers continued to exhibit double digit growth.

There was a 12 percent increase in the Tommy Hilfiger business compared to the prior-year period, including an 11 percent gain in international revenue and a 13 percent rise in Tommy Hilfiger North America revenue. The Calvin Klein business saw a 22 percent hike, including a 19 percent increase in international revenue and a 27 percent rise in Calvin Klein North America revenue.

Earnings: Net income in the period jumped more than fourfold to $279.7 million from $69.5 million in the 2020 quarter.

Earnings before interest and taxes (EBIT) for the quarter increased to $377 million compared to $122 million in the prior-year period. Included in the EBIT was an aggregate net gain of $111 million consisting of a $113 million net gain in connection with the Heritage Brands transaction and costs of $2 million in connection with actions announced in March 2021 to streamline the company’s organization through reductions in its workforce, primarily in certain international markets, and to reduce its real estate footprint, including reductions in office space and select store closures, consisting of severance. Included in EBIT for the prior-year period were costs of $10 million consisting of $9 million in connection with exiting the Heritage Brands Retail business and $1 million related to the North America workforce reduction, comprised of severance and other termination benefits.

Earnings per share for the quarter was $3.89 compared to 98 cents in the prior-year period.

Overall gross margin in the quarter was 57.7 percent compared to 52 percent in the prior-year period, primarily due to more full price selling and a favorable shift in regional sales mix. These improvements more than offset higher freight costs, including an increase in air freight to mitigate anticipated supply chain and logistics delays.

CEO’s Take: Stefan Larsson, CEO, said: “Our third quarter earnings significantly exceeded our guidance, led by our international businesses, and we achieved overall stronger than expected margin performance across brands. This reflects the strength of our global iconic brands, Calvin Klein and Tommy Hilfiger, and the pricing power we are able to achieve through strength in product, consumer engagement, and consumer experience in the digitally led marketplace. While Covid-related challenges remain, we delivered double-digit revenue growth, which would have been even stronger, and above guidance, if not for the greater than anticipated impact of U.S. port delays that pushed wholesale shipments into the fourth quarter.”

“Looking ahead, while we continue to monitor the evolving Covid uncertainty, based on our strong third quarter performance and current momentum with holiday sales off to a strong start, we are further raising our earnings guidance for the full year,” Larson added. “We are now forecasting operating margins above 2019 pre-pandemic levels. We remain highly focused on driving sustainable, long-term profitable growth and shareholder value.”