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Why Is PVH (PVH) Down 21.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for PVH (PVH). Shares have lost about 21.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is PVH due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

PVH Corp’s Q1 Earnings & Sales Beat on Brand Strength

PVH Corp impressive first-quarter fiscal 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. Results gained from the continued momentum in its core brands — Calvin Klein and Tommy Hilfiger.

The company remains on track with its PVH+ Plan, which aims to accelerate growth by boosting its core strength, and connecting Calvin Klein and TOMMY HILFIGER brands with consumers through five major drivers. These drivers are win with product; win with consumer engagement; win in the digitally-led marketplace; develop a demand- and data-driven operating model; and drive efficiencies and invest in growth.

Q1 Highlights

PVH Corp reported adjusted earnings of $1.94 per share, up 1% from the year-ago quarter's figure of $1.92. The bottom line beat the Zacks Consensus Estimate of $1.58. On a GAAP basis, the company reported earnings of $1.94 per share, reflecting a sharp improvement of 41% from $1.38 in the prior-year quarter.

In the fiscal first quarter, revenues advanced 2% year over year to $2,123 million. The top line also surpassed the Zacks Consensus Estimate of $2,079 million. This can be attributable to strength in international businesses, particularly in Europe. On the flip side, continued supply-chain and logistic headwinds, as well as the impacts of the pandemic, particularly in China, acted as deterrents in the quarter.

Direct-to-consumer revenues rose 4% year over year in the quarter. Revenues in the digital channel declined roughly 14% in the quarter under review.

The company's gross profit amounted to $1,122.6 million, down 0.6% year over year. The gross margin contracted 70 bps to 58.4%, owing to full-price selling, which offset higher freight costs.

Adjusted selling, general and administrative expenses rose 5.2% year over year to $1,039.4 million. Adjusted earnings before interest and taxes totaled $210.3 million compared with $248.7 million in the prior-year quarter. This mainly resulted from reduced expenses in the prior-year period due to store closures as well as lower marketing and investments, which were somewhat offset by higher sales.

Segmental Analysis

PVH Corp reports financial results under three segments — Calvin Klein, Tommy Hilfiger and Heritage Brands.

Revenues for the Calvin Klein segment improved 13% year over year. Sales for Calvin Klein North America increased 26% and Calvin Klein International climbed 7%.

Revenues for the Tommy Hilfiger segment rose 2% year over year in the reported quarter. Revenues were up 15% at Tommy Hilfiger North America, while the metric declined 2% at Tommy Hilfiger International.

The Heritage Brands segment's revenues declined 31% year over year in the quarter under review.

Financial Details

PVH Corp ended the quarter with cash and cash equivalents of $748.7 million, long-term debt of $2,216.5 million, and stockholders' equity of $5,268.5 million. The company also bought back $100 million of shares under its existing $3-billion share repurchase program in the quarter under review.

Outlook

Despite the uncertainty related to the Ukraine war, macroeconomic challenges, inflationary pressure and the pandemic, management issued the view for the second quarter and fiscal 2022. It expected supply-chain and logistics disruptions to result in delivery delays, and a lack of inventory availability for stores and digital businesses.

For fiscal 2022, revenues are now anticipated to increase 1-2% year over year (up 6-7% on a cc basis), down from the earlier mentioned 2-3%. This is inclusive of a 2% reduction each for the exit of the Heritage Brands Retail business and the war in Ukraine. The bottom line is expected to be $9.20, rising from $9.00 per share mentioned earlier. Notably, it reported $13.25 and $10.15 on a GAAP and non-GAAP basis, respectively, in the prior year. The fiscal 2022 operating margin is likely to be 10%.

For second-quarter fiscal 2022, management expects a year-over-year revenue decline of 4-3%. This is inclusive of a 4% reduction for the exit of the Heritage Brands Retail business and a 2% decline stemming from the war in Ukraine. The bottom line is likely to be $2.20 on a GAAP basis and $2.00 on a non-GAAP basis. Notably, it reported $2.51 and $2.72 on a GAAP and non-GAAP basis, respectively, in the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -5.94% due to these changes.

VGM Scores

Currently, PVH has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, PVH has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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