PVH turned a profit in the third quarter after a $2 million loss in Q2, but still projects a 20 percent year-over-year decline in the fourth quarter.
In a Nutshell: The parent company to Calvin Klein and Tommy Hilfiger reported Wednesday that third quarter revenue and earnings exceeded its expectations, driven by strong performance in Europe and China.
The company’s revenue through digital channels grew 36 percent, with sales through its directly operated digital commerce businesses up 70 percent compared to the prior-year period.
PVH had more than $2.7 billion of liquidity as of quarter’s end, consisting of $1.5 billion of cash on hand and over $1.2 billion of available borrowings under revolving credit facilities. The company said it continues to tightly manage its inventory, which decreased 16 percent as of the end of the third quarter compared to the prior-year period.
PVH also continues to reduce the amount of basic inventory it projects to carry into spring. As of the end of fiscal 2020, the company is currently projecting to carry approximately $100 million of basic inventory into spring, a decrease from the prior projection of approximately $125 million.
The company said it anticipates fourth quarter revenue and earnings will continue to be negatively impacted by the Covid-19 pandemic, While there is uncertainty due to resurgences throughout Europe and North America, PVH expects revenue in the fourth quarter to decline approximately 20 percent year over year.
“Our focus remains to follow where the consumer is going, by supercharging our e-commerce, improving our product offering, and driving cost efficiencies across the company,” PVH president Stefan Larsson said. “As we lean into these priorities, we are also positioning PVH to drive sustainable profitable growth in the new normal coming out of the pandemic and beyond.”
Sales: Revenue for the third quarter ended Nov. 1 decreased 18 percent to $2.11 billion compared to the prior-year period, a sequential improvement compared to the percentage revenue decreases in the prior two quarters, PVH said.
Direct-to-consumer revenue for the quarter declined 11 percent, which included a 70 percent increase in digital commerce. All regions and brand businesses experienced strong digital growth. The lack of international tourists coming to the U.S. continues to challenge the company’s North America brick-and-mortar retail businesses, as stores located in international tourist locations represent a significant portion of those businesses.
The company’s wholesale revenue fell 22 percent from a year earlier, but saw a sequential improvement compared to the revenue decreases in the prior two quarters. The revenue decline was primarily driven by the company’s North America wholesale business due, in part, to recent bankruptcies of several customers. The company’s sales to the digital businesses of its traditional and pure play wholesale customers continued to exhibit double digit growth.
Tommy Hilfiger revenue was down 12 percent, with North America revenue off 37 percent and international revenue flat. The business in China continued to achieve positive year-over-year results.
An 18 percent decrease was seen in the Calvin Klein business, with Calvin North America revenue down 39 percent and Calvin Klein International revenue flat. The business in China continued to achieve positive year-over-year results.
Earnings: Net income plummeted to $69.5 million in the quarter from $208.9 million in the comparable 2019 period. Earnings per share was 98 cents for the third quarter of 2020 compared to $2.82 in the prior-year period.
Earnings before interest and taxes (EBIT) for the quarter decreased to $122 million compared to $270 million in the prior-year period. Included were costs of $10 million consisting of $9 million in connection with the planned exit from the Heritage Brands Retail business announced in July.
The decrease was driven by the impact of the Covid-19 pandemic, including the revenue decline. Earnings in the period benefited from cost savings resulting from the North America workforce reduction and Covid-related government payroll subsidy programs in international jurisdictions, as well as reductions in all discretionary spending categories. Partially offsetting these savings were additional expenses associated with Covid-related health and safety measures.
CEO’s Take: Emanuel Chirico, chairman and CEO, said: “It is clear where we are winning with the consumer–in our international businesses, across our digital channels and with casual assortments–and we increasingly are shifting our business toward these channels and categories. We have outperformed our holiday season expectations in the fourth quarter to date, including Singles’ Day in Asia and our Black Friday promotions in North America and Europe, with particular strength across the digital channels.
“Although we are dealing with virus resurgences, including temporary store closures in parts of Europe, as well as brick and mortar traffic declines in North America, we are pivoting our businesses to capture where and how the consumer is shopping during this critically important holiday period,” Chirico added. “We believe that the accelerated investments we are making, from advancing our digital and omnichannel agendas and introducing new ways to engage our consumers, will benefit our businesses now and over the long-term.”