Facing headwinds such as import tariffs and soft sales in Calvin Klein, PVH Corp. sales were buoyed by Tommy Hilfiger and wholesale revenue.
In a Nutshell: While PVH Corp. posted a slim revenue gain in the first quarter, net income was slashed by more than half as store closings and restructuring took their toll.
The company projected 2019 revenue to increase approximately 3 percent compared to 2018. Revenue for the Tommy Hilfiger business is projected to increase approximately 6 percent, but the Calvin Klein Heritage Brands businesses were forecast to be flat.
Chairman and CEO Emanuel Chirico said the company remains confident it is “in a strong position to gain market share as we deliver against our strategic priorities.” He added, “As we continue to invest in the strategic areas of the business that address the increasingly dynamic and ever-changing consumer landscape, while also taking a more nimble approach to react to emerging business trends, we see a significant opportunity to deliver long-term value for our stockholders.”
The company said 2019 guidance assumes that two acquisitions will close in the second quarter of 2019. The first is the pending acquisition of the approximately 78 percent interest in Gazal Corporation Ltd. The second is the pending purchase of the Tommy Hilfiger retail business in Hong Kong and certain other countries in Central and Southeast Asia from the current licensee in those markets. These acquisitions are expected to add approximately $150 million of revenue in 2019.
The 2019 guidance also incorporates the impact on certain of the company’s products of tariffs imposed on nearly $200 billion of total goods imported from China into the U.S. at 25 percent. However, the 2019 guidance does not contemplate any future increase in tariffs on additional goods imported from China into the U.S.
Sales: Revenue for the first quarter ended May 6 increased 2 percent to $2.4 billion compared to the year-ago period.
Revenue in the Tommy Hilfiger business for the quarter increased 4 percent to $1.1 billion compared to the prior year period. Tommy Hilfiger International revenue also rose 4 percent, to $680 million, primarily driven by strong performance in Europe. International comparable store sales were up 9 percent. Tommy Hilfiger North America revenue increased 3 percent to $372 million, driven by growth in the wholesale business, partially offset by a 4 percent decline in North America comparable store sales.
Revenue in the Calvin Klein business for the quarter of $890 million was flat compared to the prior-year period. Calvin Klein International revenue fell 2 percent to $466 million, as solid growth in Europe was more than offset by the negative impacts of foreign currency translation and weakness in China. International comparable store sales decreased 4 percent. Calvin Klein North America revenue was up 2 percent to $424 million due to an increase in the wholesale business, partially offset by a 5 percent decline in North America comparable store sales.
Revenue in the Heritage Brands business for the quarter increased 1 percent to $415 million from the prior-year period due to an increase in the wholesale business that was partially offset by a 6 percent decline in comparable store sales.
Earnings: Net income in the period fell 54 percent to $81.6 million from $178.9 million in the year-ago period.
Earnings before interest and taxes (EBIT) for the quarter decreased 45 percent to $135 million, inclusive of a $14 million negative impact due to foreign currency translation, from $244 million in the prior-year period.
EBIT at Tommy Hilfiger for the quarter decreased to $92 million from $132 million. This included costs of $55 million incurred in connection with the closure of the company’s Tommy Hilfiger flagship and anchor stores in the U.S.
EBIT for the quarter at Calvin Klein decreased to $48 million, inclusive of a $5 million negative impact due to foreign currency translation, from $109 million in the prior-year period. Included in earnings before interest and taxes for the current quarter were costs of $70 million in connection with the restructuring associated with the strategic changes for the Calvin Klein business announced in January, consisting of a $30 million non-cash lease asset impairment resulting from the closure of the flagship store on Madison Avenue in New York, $19 million of severance, $15 million of contract termination and other costs, $5 million of other non-cash asset impairments, and $2 million of inventory markdowns.
EBIT for the quarter in Heritage Brands fell to $40 million from $42 million year-to-year, principally due to gross margin pressure from a more promotional U.S. retail environment.
CEO’s Take: Chirico said: “We are pleased with our first quarter 2019 results, as our earnings per share exceeded the high end of our guidance range. While the global retail environment was challenging, the power of our diversified business model and the strength of our brands, global platforms and teams drove our businesses forward.”
“Looking ahead, the volatile and challenging macroeconomic backdrop has continued into the second quarter, with particular softness across the U.S. and China retail landscape. Additionally, further volatility in foreign exchange rates is expected to pressure our full year earnings per share by an incremental $0.10 compared to our prior expectations. As such, we believe it is prudent to factor this into our updated full year earnings outlook.”