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PVH Takes Billion-Dollar Bruising in First Quarter

PVH Corp., parent to Tommy Hilfiger and Calvin Klein, suffered severe disruptions to every level of its business in the quarter except e-commerce.

In a Nutshell: PVH Corp. said its business was significantly impacted by the COVID-19 pandemic during the first quarter, resulting in an “unprecedented decline” in revenue and earnings, and that it expects the revenue decline in the second quarter will be even more pronounced.

The majority of the company’s stores and its wholesale customers’ stores globally were closed for six weeks on average. As a result of the widespread temporary store closures and reduced traffic while stores were open, revenue in the company’s stores declined approximately 50 percent to 65 percent compared to the prior-year period.

The company’s directly operated digital commerce businesses experienced strong growth in all regions, increasing 47 percent globally compared to the prior-year period, partially offsetting the revenue decline in its other distribution channels. The temporary closures of the firm’s wholesale customers’ stores resulted in a sharp reduction in shipments to these customers and an overall decline of 41 percent in PVH’s global wholesale revenue.

Results were under significant pressure and included a $97 million increase in accounts receivable write-offs and inventory reserves, as well as a deleveraging of expenses, as payroll costs for certain retail associates continued to be incurred for all or a significant portion of the periods during which the company’s stores were closed and expense reduction measures only started to become effective later in the quarter.

In April, PVH initiated actions to reduce its operating expenses and working capital, and is reallocating resources, where appropriate, in response to the pandemic. These measures, which began in mid-April and are ongoing, include reducing payroll costs, including salary and incentive compensation reductions; furloughs; decreased working hours and hiring new freezes, and taking advantage of applicable government relief programs.

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In addition, the company eliminated or reduced other discretionary and variable operating expenses, including marketing, travel, consulting services, and creative and design costs. It’s also tightly managing inventories, including reducing and cancelling inventory commitments, redeploying basic inventory items to subsequent seasons and consolidating future seasonal collections, as well as negotiating extended payment terms with its suppliers.

PVH is also redirecting resources and focus to support its directly operated and its brick-and-mortar and pure-play wholesale customers’ digital commerce businesses. This includes improved brand and product messaging and site functionality, as well as additional fulfillment options, including curbside pickup and fulfillment from certain of its stores globally.

The company said in recent weeks, most of its brick-and-mortar wholesale customers have reopened the majority of their locations across all regions, with larger format stores opening at a slower pace in Europe. However, due to the significant levels of inventory that remain in stores, the majority of PVH’s North American and European brick-and-mortar wholesale partners stopped accepting shipments beginning in March, which has not materially improved in the second quarter.

By mid-June, more than 85 percent of the company’s stores are expected to be reopened, although most are operating on reduced hours and at reduced occupancy levels. Sales for reopened stores for the second quarter-to-date are running down approximately 20 percent in Europe, 25 percent in North America and 25 percent for total Asia, with China approximately flat, compared to the prior-year period. While sales remain down across all regions, traffic and sales trends are improving each week, PVH noted.

The company’s directly operated digital commerce businesses were fully operational in all regions during the first quarter. PVH experienced robust consumer demand for its Tommy Hilfiger and Calvin Klein brands across all regions, resulting in double-digit to triple-digit revenue increases through its digital commerce sites during the period. Revenue through PVH’s digital commerce sites has continued to increase compared to the prior-year period even as stores reopened.

PVH said the pandemic has impacted some of its suppliers, including third-party manufacturers and logistics providers. With some of the company’s partners operating at reduced capacity, PVH continues to monitor for any potential delays or disruptions of its supply chain and will implement mitigation plans if needed.

PVH said it ended the quarter with cash of approximately $800 million and about $1 billion of available borrowings under its revolving credit facilities.

Sales: Revenue in the first quarter ended May 3 decreased 43 percent to $1.34 billion compared to the prior-year period. PVH said the revenue decline was due to a 39 percent decrease in the Tommy Hilfiger business compared to the prior-year period, including a 51 percent decline in Tommy Hilfiger North America and a 32 percent falloff in Tommy Hilfiger International.

Calvin Klein revenue fell 46 percent, including a 54 percent decrease in Calvin Klein North America and a 40 percent decline in Calvin Klein International. Heritage Brands revenue fell 47 percent.

First-quarter revenue reflected a 47 percent increase in sales through the company’s directly operated digital commerce businesses driven by strong growth in all regions, which partially offset the decline in revenue through its other distribution channels.

Earnings: The company posted a net loss in the quarter of $1.1 billion compared to earnings of $81.62 million in the year-ago period.

The loss before interest and taxes was $1.2 billion compared to earnings before interest and taxes of $135 million in the prior-year period. Included in the loss was $962 million of noncash impairments resulting from the impact of the COVID-19 pandemic on the company’s business.

The loss per share was $15.37 for the first quarter of 2020 compared to earnings per share of $1.08 in the 2019 period.

CEO’s Take: Emanuel Chirico, chairman and CEO, said: “While the pandemic will continue to have a profound impact on consumer purchasing habits for the foreseeable future, these trends underscore that our brands are strong, we have exceptional and dedicated PVH associates, and we continue to have outstanding traction with our consumers, customers and business partners.

“Throughout our nearly 140-year history, we have navigated successfully many economic and geopolitical challenges, and I am confident that we can manage through this crisis successfully, as well,” Chirico added. “We have taken a proactive stance to increase our liquidity and enhance the financial health of our businesses, from aggressively managing our operating expenses and identifying efficiencies across the business to reducing our inventory levels, to reviewing our capital allocation priorities and securing incremental liquidity, and I believe that we will emerge an even stronger organization.”