While PVH Corp. posted a $2 million loss in the second quarter and a 33 percent revenue decline, it said third-quarter results show improvement.
In a Nutshell: PVH Corp. said its second-quarter results exceeded expectations, despite continued disruption from the Covid-19 pandemic.
PVH said it strengthened its financial position, with liquidity in excess of $2.7 billion consisting of approximately $1.4 billion of cash on hand and $1.3 billion of available borrowings under revolving credit facilities as of the end of the quarter.
The company said it anticipates second half revenue and earnings will continue to be negatively impacted by the Covid-19 pandemic. While it expects revenue in the second half to decline approximately 25 percent compared to the prior-year period, it cannot provide more detailed guidance at this time due to the uncertainty related to the duration and severity of the pandemic.
The company’s total direct-to-consumer (DTC) revenue declined 24 percent in the quarter compared to the prior-year period, which includes an 87 percent increase in digital commerce. The strong digital growth was achieved across all regions and brands, even after stores began to re-open. Company-operated stores were closed temporarily during the first month of the second quarter. While almost all of the company’s stores have reopened, they have been operating on reduced hours and at reduced occupancy levels, which has continued to impact sales into the third quarter.
In the third quarter to date, DTC consumer trends have improved compared to the second quarter, with sales running down 15 percent compared to the year-ago period, including continued strong growth in digital commerce.
PVH said the majority of the company’s wholesale customers’ global stores were temporarily closed during the first month of the second quarter, resulting in a sharp reduction in shipments to these customers and an overall decline of 40 percent in wholesale revenue. However, the digital commerce channels exhibited strength across the company’s traditional and pure-play wholesale customers. This favorable trend has continued into the third quarter and all wholesale accounts are buying inventory to accommodate their strong digital trends.
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Many traditional wholesale partners are planning their store-based businesses conservatively for the balance of this year, which will result in a reduction in shipments to these customers, PVH noted. The company expects the revenue decline in its North America wholesale business will be significantly more pronounced than in Europe and Asia due, in part, to recent bankruptcies.
PVH said it continues to manage its cost structure proactively and take other prudent actions in response to economic impact of the pandemic. The company recently announced plans to streamline its North America operations to align its business with the evolving retail landscape, including the exit from its Heritage Brands Retail business by mid-2021 and reductions in its office workforce by approximately 450 positions, or 12 percent, across all three brand businesses and corporate functions.
The company continues to tightly manage its inventory, which decreased 12 percent as of the end of the second quarter from the prior-year period. As of the end of fiscal 2020, the company is projecting to carry approximately $125 million of basic inventory into Spring 2021, which is a reduction compared to the prior projection of approximately $250 million.
Sales: Revenue for the quarter ended Aug. 2 decreased 33 percent to $1.58 billion compared to the prior-year period, which was an improvement compared to the percentage revenue decrease for the first quarter.
The revenue decrease was due to a 28 percent decline in the Tommy Hilfiger business, including a 51 percent falloff in Tommy Hilfiger North America and a 14 percent drop in Tommy Hilfiger International, with China showing positive year-over-year results.
The Calvin Klein business fell 32 percent, including a 51 percent decrease in Calvin Klein North America and a 16 percent decline in Calvin Klein International, with China also showing positive year-over-year results in the division.
Earnings: PVH posted a loss before interest and taxes for the quarter of $2 million compared to earnings before interest and taxes (EBIT) of $250 million a year earlier. Included in the loss were costs of $51 million consisting of $38 million related to the North America workforce reduction, primarily consisting of severance, and $12 million in connection with the planned exit from the Heritage Brands Retail business.
The company said the loss was driven by the impact of the Covid-19 pandemic, including the revenue decline. Earnings benefited from Covid-related government payroll subsidy programs in international jurisdictions and rent abatements negotiated with certain of the company’s landlords, as well as salary reductions and employee furloughs.
The company also eliminated or reduced other discretionary spending, including marketing, travel, consulting services, and creative and design costs. Partially offsetting these savings were additional expenses associated with the implementation of health and safety measures. These safety measures are expected to continue and will cost more in the second half of the year.
The loss per share was 72 cents for the quarter compared to earnings per share of $2.58 in the prior-year period.
CEO’s Take: Emanuel Chirico, chairman and CEO, said: “Our second quarter revenue exceeded our expectations, reflecting better than expected performance in all our markets and channels. We continue to see outperformance in our digital businesses and across our comfort and casual assortments. As we head into the third quarter, trends in China and Europe continue to be very encouraging. However, our North America business continues to experience pressure due to the resurgence of Covid-19 cases and the lack of international tourist traffic coming to the U.S.”
“As we continued to navigate the pandemic during the second quarter, we took immediate actions to address changes in our business needs by right-sizing our costs, driving our digital businesses, managing our inventories and raising additional capital to further support our already-solid financial position,” Chirico added. “Beyond these actions, we are focused on several key priorities to drive an accelerated recovery, which establish a clear strategic direction for us to drive our business to capture the opportunities we see coming out of the crisis. We are confident that these focus areas–improving our products and assortments, strengthening our distribution, especially in our digital channel, and capturing cost efficiencies–will best position us to gain market share globally and win with our consumers.”