A month has gone by since the last earnings report for PVH (PVH). Shares have lost about 2.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
PVH Surpasses Q2 Earnings Estimates
PVH Corp reported second-quarter fiscal 2024 results, wherein both earnings and revenues topped the Zacks Consensus Estimate. The bottom line significantly improved while the top line fell year over year. It reported adjusted earnings of $3.01 per share, up 52.0% from the year-ago quarter's $1.98. The bottom line also beat the Zacks Consensus Estimate of earnings of $2.27 per share and the company’s guidance of $2.25.
Revenues fell 6% year over year (down 5% at constant currency) to $2,074 million but beat the consensus mark of $2,068 million.
The company's international businesses saw a 4% decrease in revenues (down 3% on a constant currency basis), mostly due to the challenging consumer environment in Asia Pacific, particularly in China and Australia. Additionally, it has been strategically reducing sales in Europe to improve overall sales quality in the region. In North America, combined revenues for the Tommy Hilfiger and Calvin Klein brands saw a rise of 1% from the previous year.
Direct-to-consumer revenues declined 5% from the prior-year period (down 3% on a constant-currency basis). Revenues in the company’s owned and operated physical stores fell 4% year over year (3% on a constant currency basis). This decrease was largely due to recent softness in the consumer market. The digital commerce unit of the owned and operated stores decreased 6% (5% on a constant-currency basis) year over year, mainly due to reduced sales in Europe.
Wholesale revenues fell 9% from the prior-year period (down 8% on a constant-currency basis). The decline was largely due to a 7% reduction in sales of the Heritage Brands women's intimates business. The remaining decline was attributed to the company’s ongoing strategic effort to reduce wholesale revenues in Europe.
The company's gross profit of $1.2 billion dipped 2.1% year over year. The gross margin expanded 250 bps to 60.1% on gains from lower product costs, a favorable shift in channel mix and a fall in sales to lower-margin wholesale accounts.
Selling, general and administrative expenses dipped 4.8% year over year to $1.08 billion.
PVH’s Segmental Analysis
Revenues for the Calvin Klein segment were down 1% year over year (flat on a constant currency basis). The segment recorded a 2% sales decline (flat in constant currency) at Calvin Klein International and 1% increase at Calvin Klein North America.
Revenues for the Tommy Hilfiger brand dropped 4% year over year (down 3% in constant currency). Revenues fell 6% (down 5% in constant currency) in Tommy Hilfiger International, mostly due to reduced sales in Europe.
The Heritage Brands segment's revenues plunged 60% year over year. This included a 56% year-over-year decline in the sale of the Heritage Brands women's intimates business.
A Closer Look at PVH's Financial Performance
PVH ended the fiscal second quarter with cash and cash equivalents of $0.6 billion, long-term debt of $1.7 billion and stockholders' equity of $5.2 billion.
In alignment with the PVH+ Plan's objective to return excess cash to shareholders, the company executed the repurchase of 2.0 million shares of its common stock, amounting to $25 million. It expects to repurchase shares of $400 million for the fiscal year 2024.
PVH’s Guidance
For the third quarter, revenues are projected to decline in the range of 6-7% (down 7-8% in constant currency) from the year-ago quarter, including a 2% reduction related to the Heritage Brands sale.
EPS, on a non-GAAP basis, is expected to be $2.50 compared with $2.90 in the year-ago quarter. This view includes an unfavorable currency impact of 5 cents per share. EPS, on a GAAP basis, is expected to be $2.30 compared with $2.66 in the year-ago quarter.
For fiscal 2024, the company anticipates a year-over-year revenue decline in the range of 6-7%, which is consistent on a constant currency basis. This includes a 2% reduction due to the divestiture of the Heritage Brands women’s intimates business and a 1% impact from the 53rd week in fiscal 2023.
PVH expects the adjusted operating margin to be nearly flat compared with 10.1% in fiscal 2023. On a GAAP basis, the operating margin is likely to be about 9.8%, down from the 10.1% projected earlier.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -18.47% due to these changes.
VGM Scores
At this time, PVH has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front 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 A. 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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