Apparel giant PVH Corp., owner of the Calvin Klein and Tommy Hilfiger mega-brands and Van Heusen, IZOD, Speedo, Warner’s and other category-specific apparel brands, reported third quarter earnings that exceeded both Wall Street expectations and the top end of the company’s guidance, despite volatile macro trends in key markets in North America and Europe.
Total revenue was $2.23 billion, up 2 percent over the prior year’s third quarter amount excluding $67 million of revenue related to the Bass business (which was sold on the first day of the fourth quarter in 2013). Revenue decreased 1 percent from the prior year period including the Bass revenue.
Third quarter 2014 revenue was negatively impacted by approximately $30 million in foreign currency losses resulting from the strong U.S. dollar, and challenged by both sluggish store traffic both in Europe and North America and unseasonably warm weather in Europe.
There was a 2 percent increase in Calvin Klein revenue, to $816 million, including a 1 percent negative impact from foreign currency translation. Calvin Klein North America total and comp sales grew by 5 percent. Royalty revenue increased 2 percent due to continued strength in womenswear. During the quarter the company delivered new core Calvin Klein underwear product with better fabrics, improved waistbands, enhanced styling and elevated packaging. In addition, it upgraded and installed new shop-in-shops in key Macy’s and Lord & Taylor locations.
Tommy Hilfiger revenue increased 1 percent to $930 million, including a 2 percent negative impact from foreign currency translation. North American revenue increased 3 percent, a combination of a comp sales rise of 1 percent and the expansion of company-operated stores. Revenue growth from square footage expansion in the Tommy Hilfiger Europe retail business was partially offset by a comparable store sales decline of 5 percent, principally due to a significant deceleration in traffic across the region in the middle of the quarter, combined with less promotional activity compared to the third quarter of the prior year. The Tommy Hilfiger Europe business experienced positive retail comparable store sales towards the end of quarter.
The company’s Heritage Brands business, excluding Bass, increased by 3 percent to $487 million compared to the prior year period excluding $67 million of revenue related to the Bass business. A 6 percent increase in the wholesale business was partially offset by a 6 percent comparable store sales decline in the retail business. Including the Bass revenue in 2013, revenue decreased 10 percent from the prior year period revenue of$539 million. The company is pleased with the Heritage wholesale business, particularly in the IZOD and Van Heusen brands. The launch of IZOD at Kohl’s has exceeded initial sales projections. However, the profitability of the Heritage Brand business was down a reported 15 percent due to the heightened promotional activity, particularly in the company’s own outlet stores.
Total gross margin, which includes gross margin on net sales, royalty, advertising and other revenue, was 52.4% of total revenue, up 60 basis points from the third quarter of last year.
Net income was $225.7 million, or $2.71 per share, compared to $196.6 million, or $2.37 per share, in the prior year period.
Commenting on these results, Emanuel Chirico, chairman and chief executive officer, noted, “Despite the anticipated difficult macroeconomic environment, we are very pleased with our third quarter performance, driven by the strength of our Tommy Hilfiger business and an improvement in our Calvin Klein business. During the quarter, we saw our global strategic initiatives in our Calvin Klein jeans business begin to take hold, with improved performance in our newly installed shop environments and store refits. Additionally, our acquisition integration efforts remain on track, with the last phase to be completed during 2015.”
He went on to say, “We remain firm in our belief that the strength of our brands, together with the strategic investments made during 2013 and 2014, along with our strong balance sheet and continued debt repayment, will position us to deliver long term global growth and stockholder value.”