Stumbles at Calvin Klein were offset by a strong performance at Tommy Hilfiger for PVH Corp. in the third quarter, while the calendar presents a problem in the fourth.
In a Nutshell: While PVH Corp, said it was “disappointed” in the Calvin Klein 205 W39 NYC business and poor sell-through on the Calvin Klein Jeans relaunch, it squeaked out a gain in income. Revenue was stronger, propped up by a strong performance at Tommy Hilfiger.
PVH also warned that revenue in the fourth quarter will be negatively impacted compared to the prior year period as a result of a 53rd week in 2017. The total negative impact in the fourth quarter of 2018 compared to the prior year period is about $125 million. The company projected fourth revenue to decrease approximately 4 percent compared to the prior-year period, including a 5 percent negative impact due to the 53rd week in 2017. Revenue for the Tommy Hilfiger business in the fourth quarter is projected to be down 4 percent, while revenue for the Calvin Klein business in the quarter is forecast to decline 6 percent.
Sales: Revenue for the third quarter ended Nov. 4 increased 7 percent to $2.5 billion compared to the prior year period.
Revenue in the Tommy Hilfiger business for the quarter increased 11 percent to $1.1 billion compared to the prior-year period. Tommy Hilfiger International revenue increased 16 percent to $708 million, driven by continued strong performance across all regions and channels, including a 13 percent increase in comparable store sales. Tommy Hilfiger North America revenue rose 3 percent to $424 million, primarily attributable to strength in the wholesale business.
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Revenue in the Calvin Klein business increased 2 percent in the period to $963 million. Calvin Klein International revenue rose 3 percent to $482 million, driven by growth in Europe. Calvin Klein North America revenue was up 1 percent to $481 million, as growth in the wholesale business was partially offset by a 2 percent comparable store sales decline.
Earnings: Net income rose 1.6 percent to $242.6 million from $238.7 million in the year-ago period. Earnings before interest and taxes (EBIT) for the quarter rose to $282 million, inclusive of a $7 million negative impact due to foreign currency translation, from $281 million in the prior-year period.
EBIT at Tommy Hilfiger increased to $177 million, inclusive of a $4 million negative impact due to foreign currency translation, from $147 million in the prior year period. EBIT at Calvin Klein fell to $121 million, inclusive of a $4 million negative impact due to foreign currency translation, from $142 million in the prior year period. The earnings decrease was primarily attributable to an approximately $10 million increase in creative and marketing expenditures compared to the prior year period, as well as gross margin pressure principally due to more promotional selling in the Calvin Klein Jeans business, particularly in North America.
CEO’s Take: Emanuel Chirico, chairman and CEO, said, “We are pleased with the strong earnings performance in the third quarter, which exceeded our expectations, driven by the power of our diversified global business model. We continue to over-deliver against our 2018 plan and are raising our full year earnings outlook based on our third quarter outperformance and our confidence in the opportunities for the fourth quarter, despite recent retailer bankruptcies in the U.S. and U.K. and increasing geopolitical volatility around the world.”
“Our Tommy Hilfiger business truly outperformed, with strength across all regions, product lines and channels of distribution,” Chirico continued. “The brand continues to gain meaningful market share, as our consumer-centric brand approach and consistent brand execution are driving global momentum. The Calvin Klein brand continues to command strong brand health and desire in all markets, however, the business in the third quarter experienced softness. While many of the product categories performed well, we are disappointed by the lack of return on our investments in our Calvin Klein 205 W39 NYC halo business and believe that some of the Calvin Klein Jeans relaunched product was too elevated and did not sell through as well as we planned. As we move into 2019, we believe the consumer will increasingly feel more connected to the brand as we offer a more commercial product and marketing experience to capture the long-term opportunity for our Calvin Klein business.”