PVH Corp. said the Covid-19 pandemic severely crimped fourth quarter and yearly revenue and earnings, with the impact varied by region and channel.
In a Nutshell: The parent to Tommy Hilfiger and Calvin Klein reported that total direct to consumer revenue for the fourth quarter declined 20 percent compared to the prior-year period, even with a 68 percent increase in digital commerce.
All regions and brand businesses continued to experience strong digital growth and the company continued to see positive overall trends in China, PVH said. Approximately 70 percent of company-operated stores in Europe and about 75 percent in Canada were closed temporarily during the quarter as a result of the virus resurgences there.
PVH’s wholesale revenue for the fourth quarter fell 19 percent from the year-earlier period, which included a double digit increase in sales to the digital businesses of its traditional and pure play wholesale customers.
The company continued to tightly manage its inventory, which decreased 12 percent as of the end of 2020 compared to the prior year. PVH said it is carrying around $75 million of basic inventory into Spring, a decrease from its prior projection of around $100 million.
PVH said it was issuing 2021 guidance despite the “significant uncertainty due to the COVID-19 pandemic globally and, as such, it could be subject to material change.” The 2021 outlook does not contemplate any new store closures, new lockdowns or extensions of current lockdowns beyond what is already known.
In addition, the 2021 outlook does not contemplate further supply chain disruptions, including any greater impact beyond the minimal impact currently expected from the shipping disruption occurring as a result of the temporary blockage of the Suez Canal.
PVH expects its 2021 revenue and earnings will continue to be negatively impacted by the pandemic, particularly in the first quarter due to ongoing store closures, predominantly in Europe. Despite that, it expects its international businesses to exceed 2019 pre-pandemic revenue levels in the first half of the year.
The North America businesses are forecast to remain challenged throughout 2021, as international tourism–the source of a significant portion of regional revenue–is not expected to return to any significant level until the end of the year.
PVH said it continues to tightly manage its inventory and expects gross margin to improve in 2021 compared to 2020, thanks in large part to a reduction in promotional selling as inventory levels are significantly lower at the end of 2020.
The company noted that it also took actions beginning in 2020 that will continue into 2021 to manage its cost structure proactively, including reducing operating expenses and reallocating resources to support strategic growth areas of the business. As part of these actions, in 2021, the company will reduce its workforce in certain international markets and reduce its real estate footprint, including reductions in office space and select store closures. These actions are in addition to previously announced actions taken to streamline North American operations to better align the business with the evolving retail landscape, including a reduction in its North America office workforce by approximately 12 percent and the exit from its 162-store Heritage Brands Retail business by mid-2021.
Revenue in 2021 is projected to increase 22 percent to 24 percent compared to 2020. The company projects that 2021 earnings per share (EPS) will be approximately $5 compared to a loss per share of $15.96 in 2020.
Revenue in the first quarter is projected to increase 42 percent to 44 percent compared to the prior-year period. First quarter earnings EPS will be in a range of 28 cents to 31 cents compared to loss per share of $15.37 in the prior-year period.
Sales: Revenue for the fourth quarter ended Jan. 31 decreased 20 percent to $2.09 billion year over year. PVH said the decrease was due to a 16 percent decline in the Tommy Hilfiger business compared to the prior-year period, including a 28 percent fall off in Tommy Hilfiger North America revenue and a 10 percent dip in Tommy Hilfiger International, which includes the impact of temporary store closures for much of the quarter as a result of the extensive lockdowns throughout Europe.
In addition, there was a 17 percent decrease in the Calvin Klein business, including a 25 percent decline in Calvin Klein North America revenue and a 10 percent drop in Calvin Klein International, and a 41 percent decline in the Heritage Brands business that included a 17 percent drop from the sale of Speedo North America.
For the year, revenue fell 28 percent to $7.13 billion compared to 2019. The revenue decrease was due to a 23 percent decrease in the Tommy Hilfiger business, including a 41 percent decline in Tommy Hilfiger North America revenue and a 13 percent drop in Tommy Hilfiger International, as well as a 28 percent decrease in the Calvin Klein business, including a 43 percent fall off at Calvin Klein North America and a 16 percent dip in Calvin Klein International.
A 44 percent drop was seen in the Heritage Brands business compared to 2019, which included a 12 percent decline resulting from the sale of Speedo North America. Revenue for 2020 included a 69 percent increase in sales through the company’s directly operated digital commerce businesses, driven by strong growth in all regions and brand businesses, which partially offset the decline in revenue through its other distribution channels.
Earnings: Earnings before interest and taxes (EBIT) for the quarter was $26 million compared to an EBIT loss of $96 million in the prior-year period.
Included in EBIT for the quarter were $2 million of net costs consisting of $59 million of noncash store asset impairments resulting from the impact of the COVID-19 pandemic on the company’s business and the impact of a shift in consumer buying trends from brick and mortar stores to digital channels, $8 million of costs in connection with the planned exit from the Heritage Brands Retail business announced in July and a $65 million actuarial gain recognized on retirement plans.
There was a loss per share of 81 cents for the fourth quarter of 2020 compared to a loss per share of 93 cents in the year-earlier period.
For the year, PVH experienced a loss before interest and taxes of $1.07 billion compared to EBIT of $559 million in 2019. For the year, the loss per share was $15.96 compared to earnings per share of $5.60 in 2019.
CEO’s Take: Stefan Larsson, CEO, said: “We delivered fourth quarter revenue in line with expectations despite more extensive lockdowns in Europe, as we successfully navigated the uncertainty and unprecedented impacts caused by the pandemic to drive toward an accelerated recovery. We remain focused on connecting our core strengths to where the consumer is going–with our biggest brands Calvin Klein and Tommy Hilfiger, in how we are super charging e-commerce, through our casual assortments and how we are taking market share in our international businesses. As we look forward, we will increasingly continue to shift our business globally toward these channels and categories.”
“In addition, we executed disciplined expense management, significantly improved our inventory position and ended the year with over $3 billion in liquidity,” Larsson added. “By leveraging the power of PVH, I am confident that together we will drive brand relevance and cost efficiencies and deliver long-term sustainable growth, and do it in a way that drives fashion forward for good.”