PVH Corp. said its first quarter results exceeded expectations, despite supply chains issues, led by strong digital growth.
The company’s international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels for the remainder of 2021, while the North America businesses are expected to remain challenged throughout 2021, as international tourism, a source of a significant portion of regional revenue, is not expected to return to any significant level this year.
In addition, PVH’s outlook reflects approximately $20 million of estimated operating losses associated with the wind down of the Heritage Brands Retail business in the first half of the year. The company said it continues to tightly manage its inventory, which decreased 7 percent at quarter’s end, and expects gross margin to improve in 2021 compared to 2020 due to less promotional selling. However, gross margin improvements for the remainder of the year, as compared to the gross margin improvement in the first quarter of 2021, will not be as pronounced due, in part, to a less favorable shift in regional sales mix.
PVH said it continues to manage its cost structure proactively, including reducing operating expenses and reallocating resources to support strategic growth areas of the business. The 2021 outlook does not contemplate any new store closures, new lockdowns or extensions of current lockdowns beyond what is already known. In addition, the forecast contemplates orders delays of approximately four to six weeks on average for certain products, but does not contemplate any greater supply chain disruptions beyond that.
Revenue in 2021 is projected to increase 24 percent to 26 percent compared to 2020. PVH projects that 2021 earnings per share (EPS) will be approximately $5.50 compared to a loss per share of $15.96 in 2020.
Revenue in the second quarter is projected to increase 34 percent to 36 percent compared to the prior-year period. Second quarter EPS is expected to be in a range of 79 cents to 82 cents compared to loss per share of 72 cents a year earlier.
Sales: Revenue for the first quarter ended May 2 increased 55 percent to $2.08 billion compared to $1.35 billion in the prior-year period, driven by growth across all regions and channels. The prior year period was negatively impacted by extensive temporary store closures, as virtually all of the company’s stores and its wholesale customers’ stores globally were closed for six weeks on average.
The revenue gain reflected a 63 percent increase in the Tommy Hilfiger business compared to the 2020 period to $1.05 billion, including a 78 percent rise in international revenue and a 25 percent increase in North America revenue, and a 65 percent jump in the Calvin Klein business to $785.2 million, including a 91 percent increase in international revenue and a 27 percent hike in North America revenue.
Total direct-to-consumer revenue in the quarter increased 66 percent compared to a year earlier, which included a 66 percent increase in digital commerce. PVH’s stores continued to face pressure during the first quarter as a result of the pandemic, although to a much lesser extent than in the prior-year period, with a significant percentage of the company’s stores having been temporarily closed in Europe, Canada and Japan. All regions and brand businesses experienced strong digital growth due, in part, to the continued store closures, particularly in Europe.
Wholesale revenue for three months rose 53 percent year over year, driven by strong performance in Europe, and included a significant gain in sales to the digital businesses of its traditional and pure play wholesale customers.
Earnings: Net income in the quarter was $99.7 million compared to a net loss of $1.1 billion in the 2020 period.
Earnings before interest and taxes (EBIT) for the quarter was $197 million compared to a loss before interest and taxes of $1.22 billion in the year-ago period. Included in EBIT in the quarter were costs of $51 million consisting of $43 million in connection with actions to streamline the company’s organization through reductions in its workforce, primarily in certain international markets, and to reduce its real estate footprint, including reductions in office space and select store closures.
Included in loss before interest and taxes for the prior year period were costs of $972 million consisting of $962 million of noncash impairments resulting from the impact of the COVID-19 pandemic on the Company’s business.
EPS was $1.38 for the first quarter of 2021 compared to a loss per share of $15.37 in the prior-year period that included $962 million of pre-tax noncash impairment charges resulting from the impact of the COVID-19 pandemic on the company’s business.
Gross margin in the first quarter was 59.1 percent compared to 49.5 percent in the year-ago period, with improvements across all regions and brand businesses. The increase was primarily due to less promotional selling, a favorable shift in regional sales mix and the absence of significant inventory reserves that had been recorded in the prior-year period.
CEO’s Take: Stefan Larsson, CEO, said: “We are very pleased with our first quarter 2021 results, which significantly exceeded our expectations, and reflect our team’s strong execution of our accelerated recovery priorities across our businesses globally–focused on the Calvin Klein and Tommy Hilfiger brands, our international markets, driving product strength with increased pricing power and margin expansion, and winning in the marketplace through super-charging e-commerce.”
“Looking ahead, we are increasing our full year outlook despite continued uncertainty in the macro environment, as we navigate through the pandemic and related supply chain disruptions,” Larson added. “We are confident in our ability to drive toward an accelerated recovery in a way that positions PVH closer to the consumer than any time before. Our focus on the consumer, while leaning into our core strengths, combined with a more demand and data-driven way of driving profitable market share growth, forms a very strong foundation for long-term sustainable growth.”