After revenue gains in the fourth quarter and year didn’t quell earnings declines, PVH now faces the pandemic with “unwavering confidence.”
In a Nutshell: PVH Corp. said Wednesday that first-quarter and full-year 2020 results will include a “significant negative impact” as a result of the COVID-19 pandemic. Given the dynamic nature of the situation, the company did not offer 2020 guidance.
The company said the coronavirus pandemic is having a significant impact on its business, operations, financial condition and cash flows. Virus-related concerns, reduced travel, temporary store closures and government-imposed restrictions have resulted in sharply reduced traffic and consumer spending trends and sales stoppages in the company’s stores in virtually all key markets during the first quarter. And they are similarly impacting its wholesale customers and licensing partners.
In addition, the company’s supply chain and the supply chains of its licensing partners have been disrupted and may experience future disruptions as a result of either closed factories or manufacturers operating with reduced workforces. With the significant uncertainty about the duration and extent of the negative impacts of the pandemic on the company and its business partners, PVH said it is monitoring the situation closely with regards to its associates, customers, business partners and supply chain.
In addition, depending on the duration and extent of the pandemic, the company’s results of operations, financial condition and cash flows in 2020 also may be significantly negatively impacted by, among other things, noncash asset impairments, excess inventory and difficulty collecting trade receivables.
PVH ended 2019 with cash of $503 million and with inventory levels down 7 percent compared to the prior year. In order to preserve liquidity and ensure the company’s financial flexibility, it drew down $750 million from its more than $1 billion revolving credit facility to add to cash balances, while maintaining untapped capital through its revolving credit facility.
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PVH is reviewing every opportunity to eliminate discretionary operating expenses, while reducing capital expenditures to approximately $190 million from $345 million in 2019. The company is tightly managing inventories, with a focus on reducing its working capital.
Sales: Revenue for the fourth quarter ended Feb. 2 increased 5 percent to $2.6 billion compared to the prior-year period.
Revenue in the Tommy Hilfiger business for the quarter increased 12 percent to $1.3 billion compared to the prior-year period. Tommy Hilfiger International revenue increased 20 percent to $865 million, primarily driven by continued outperformance in Europe. International comparable store sales increased 10 percent.
Tommy Hilfiger North America revenue decreased 2 percent to $440 million compared to the year-ago period, as growth in the North America wholesale business was more than offset by a 6 percent decline in North America comparable store sales due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.
Revenue in the Calvin Klein business for the quarter decreased 2 percent to $936 million compared to the prior-year period. Calvin Klein International revenue increased 6 percent to $554 million, driven by continued growth in Europe that was partially offset by continued softness in Asia due, in part, to the business disruptions caused by the protests in Hong Kong. International comparable store sales increased 1 percent.
Calvin Klein North America revenue was down 11 percent to $382 million compared to the year-ago period. The decrease was due to a revenue decrease in the wholesale business resulting from the licensing of the company’s directly operated women’s jeanswear wholesale business in the U.S. and Canada to G-III Apparel Group, partially offset by a 4 percent increase in North America comparable store sales.
Full-year 2019 revenue rose 3 percent to $9.91 billion compared to 2018. The revenue increase was due to an 8 percent increase in the Tommy Hilfiger business compared to the prior year, driven principally by outperformance in Europe. International comparable store sales increased 9 percent. North America comparable store sales decreased 6 percent.
Calvin Klein saw a 2 percent decrease for the year, as continued solid growth in Europe was more than offset by the negative impacts of foreign currency translation, softness experienced in Asia due, in part, to the business disruptions caused by the protests in Hong Kong and the trade tensions between the U.S. and China, the reduction of revenue resulting from the closure of the Calvin Klein 205 W39 NYC brand and the effect of the G-III license.
International comparable store sales decreased 1 percent and North America comparable store sales were down 2 percent.
Earnings: The company posted a loss before interest and taxes for the quarter of $96 million compared to earnings before interest and taxes (EBIT) of $134 million in the prior-year period. Included in the loss were costs of $246 million.
EBIT at Tommy Hilfiger fell to $145 million from $168 million in the prior-year period. EBIT at Calvin Klein increased to $64 million from $44 million in the prior-year period.
For the year, EBIT decreased to $559 million from $892 million in the prior year.
CEO’s Take: Emanuel Chirico, chairman and CEO, said: “PVH ended the year with a strong holiday season and increasing momentum across Tommy Hilfiger and Calvin Klein in the majority of the regions where we operate. I believe that we are in a solid financial position to navigate the COVID-19 outbreak and this period of unprecedented volatility. Our balance sheet has always been one of our core strengths and we have over $1 billion in cash and available borrowings. We also are taking a hard look at all of our discretionary spending, payroll and salary reductions, capital expenditures and inventory management with a firm focus on managing our cash flow and preserving our cash position and financial standing.
“While the outbreak is highly dynamic and continues to unfold, my confidence in the power of PVH and our ability to navigate this crisis is unwavering,” Chirico added. “With a nearly 140-year history, I believe that our core strengths–our talent, our brands, and our strong fundamentals and balance sheet–will continue to support us through this uncertain time and ultimately lead us back to a healthy path of long-term growth once the pandemic subsides.”