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Financial Roundup: Calvin and Tommy Push PVH, While J.Crew Weighs Down the Group

PVH Corp. posted strong sales and income gains in the fourth quarter and year, while J.Crew Group’s signature chain continued to struggle.

PVH Corp.

In a Nutshell: PVH Corp. reported 2017 revenue exceeded guidance, driven by its Tommy Hilfiger and Calvin Klein brands. Sales in the fourth quarter and year were buoyed by growth in North America, Europe and Asia, while income was helped by a one-time tax benefit in the fourth quarter form the federal tax legislation passed in December.

Sales: Revenue for the fourth quarter ended Feb. 4 increased 19 percent to $2.5 billion compared to $2.11 billion in the prior year period. Revenue in the Calvin Klein business for the quarter increased 23 percent to $977 million compared to the prior-year period. Calvin Klein International revenue rose 33 percent to $512 million driven by strong performances in Europe and Asia. Calvin Klein North America revenue increased 13 percent to $464 million as a result of strong wholesale performance across all categories.

Revenue in the Tommy Hilfiger business for the quarter gained 22 percent to $1.1 billion, with a 37 percent increase in Tommy Hilfiger International and a 5 percent gain for Tommy Hilfiger North America.

Record full year 2017 revenue of $8.91 billion increased 9 percent from $8.2 billion a year earlier.

Earnings: Net income for the fourth quarter increased 7.4% to $107.9 million from $100.4 million in the year-ago period. In the Calvin Klein business, earnings before interest and taxes (EBIT) in the quarter increased to 14.5% to $79 million. EBIT at Tommy Hilfiger fell 28.8% to $47 million, which included costs of $83 million incurred in connection with an amendment to Tommy Hilfiger’s employment agreement that resulted in a cash buyout of a portion of future payments.

The tax legislation resulted in a one-time net tax benefit of $53 million in the fourth quarter, consisting of a $265 million benefit primarily from the remeasurement of net deferred tax liabilities, partially offset by a $38 million valuation allowance on the company’s foreign tax credits and a $174 million transition tax on earnings of foreign subsidiaries deemed to be repatriated.

CEO’s Take: Emanuel Chirico, chairman and CEO, said: “Our 2017 results demonstrate our strong execution and commitment to our long-term vision. We continued to make investments that centered around areas most impacted by the changing dynamics in the industry–the growing prominence of digital, the importance of having a nimble and responsive supply chain and our ever-present commitment to driving consumer engagement. We encouraged our associates to be forward-thinking, with a focus on adapting to the evolving consumer environment, enhancing our brands and their competitive positioning across product lines and geographies and better aligning our business to make it easier to initiate and effect change. While we, like many other global consumer companies, will continue to face geopolitical headwinds, the power of our brands, our businesses and, most importantly, our people should drive our company forward.”

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J.Crew Group Inc.

In a Nutshell: With its transformation strategy under way, J.Crew Group delivered double digit adjusted EBITDA growth and an improvement in gross margin expansion and in the fourth quarter and the full year. Madewell led a sales gain in the period, while J.Crew continued to struggle.

Sales: Revenues for the fourth quarter increased 2 percent to $710.6 million, which includes $28.6 million generated in the 14th week compared to last year’s 13-week quarter. Comparable company sales fell 3 percent following a decrease of 5 percent in the fourth quarter last year.

J.Crew sales declined 4 percent to $547.1 million, as comparable store sales fell 7 percent. Madewell sales increased 32 percent to $135.8 million and its comparable store sales increased 17 percent.

For the year, revenues fell 2 percent to $2.37 billion, which included $28.6 million generated in the 53rd week. Comparable store sales for the overall company decreased 6 percent.

J.Crew sales were down 8 percent to $1.85 billion in the year, as comparable sales decreased 10 percent. Madewell sales rose 23 percent to $421.1 million, with its comparable sales increasing 13 percent.

Earnings: Net income was $36.6 million compared to $1.1 million in the fourth quarter last year. The fourth quarter this year includes a benefit for income taxes of $64.8 million, the company noted. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 25 percent to $64.6 million from $51.5 million in the fourth quarter last year. Gross margin increased to 36.6% from 34.7% in the fourth quarter last year.

The net loss for the year was $125 million compared to a loss of $23.5 million last year. The net loss this year includes a benefit for income taxes of $105.5 million. Adjusted EBITDA increased 18 percent to $222.2 million from $188.5 million last year.

CEO’s Take: Jim Brett, CEO, said: “While we are only at the very beginning of our evolution of the J.Crew brand, meaningful change is happening and we are already seeing results in our most important business–women’s apparel–signaling that our strategy is working. With the right strategy and leadership in place, we are uniquely prepared to respond to the growing customer preference for a more personalized experience. We will scale Madewell more rapidly, building upon its proven and consistent record of growth, through strategic investments with highly profitable returns.”