DFBG Centric Brands (delisted)

PVH Corporation (PVH) posted yet another better-than-expected quarterly results. The company's second quarter fiscal 2013 adjusted earnings per share rose 8.6% year over year to $1.39 and beat its own guidance of $1.35 and the Zacks Consensus Estimate of $1.37. The upside was primarily driven by strong revenue growth from the acquisition of The Warnaco Group, Inc. and improved margins.

However, including acquisition, integration and restructuring costs related to Warnaco Group, the company posted a loss of 20 cents per share compared with earnings of $1.22 reported in the comparable year-ago period.

Quarter in Detail

During the quarter, PVH Corp.’s total revenue jumped 47.0% to $1,964.8 million compared with $1,336.6 million in the year-ago quarter. The year-over-year increase in revenues was attributable to robust sales performances across all segments of the company.  Moreover, quarterly revenues surpassed the Zacks Consensus Estimate of $1,882.0 million.

PVH Corp.’s adjusted operating profit rose 35.2% to $213.3 million from $157.8 million in the year-ago comparable quarter. However, the company’s operating margin contracted 90 basis points (bps) to 10.9% from the year-ago period. The year-over-year decline in operating margin was primarily due to increased selling, general and administrative (SG&A) expenses, which more than offset the positive impact of the Warnaco Group acquisition.

Segment analysis

From the beginning of first-quarter fiscal 2013, PVH Corp. has decided to report its financial results under 3 business segments­ – a) Calvin Klein which includes Calvin Klein North America and Calvin Klein International segments, b) Tommy Hilfiger comprising Tommy Hilfiger North America and Tommy Hilfiger International businesses, and c) Heritage Brands consisting of Heritage Brands Wholesale and Heritage Brands Retail segments.

Calvin Klein’s revenues jumped more than twofold to $670.6 million from $251.2 million in the year-ago quarter. This year-over-year increase in revenues came on the back of the Warnaco acquisition and a 6% rise in comparable-store sales (comps) at PVH Corp.’s Calvin Klein North America retail business. However, comps at the company’s Calvin Klein International segment dropped 1%.

The segment’s adjusted operating profit rose 58.3% to $95.3 million from $60.2 million, primarily driven by the Warnaco acquisition, strong sales at the Calvin Klein’s North America segment and an improved gross profit resulting from higher average unit retail selling price.

Revenues at the company’s Tommy Hilfiger segment increased 10.7% to $799.3 million from $721.9 million in the year-ago period, due to 10% growth in the North American business and 11% rise in international business. The segment’s North American business mainly benefited from a 7% rise in retail comps, along with square footage expansion. Further, double-digit growth in the European wholesale business, 6% rise in the European retail business and retail square footage expansion drove the segment’s international revenues.

The segment’s adjusted operating profit grew 2.6% to $99.8 million from $97.2 million in the second quarter of fiscal 2012. The increased operating profit was due to revenue growth at the segment’s North American business, partially offset by weak performance in Japan and margin pressure in Europe.

The company’s Heritage Brands segment’s revenues increased 36.2% year over year to $495.0 million, up from $363.5 million in second-quarter fiscal 2012. The increase was primarily driven by the newly acquired Speedo swim product and Warner’s and Olga women’s intimate apparel businesses, partially offset by a 2% negative impact due to the company’s exit from Izod women’s and Timberland wholesale businesses.

Adjusted operating profit jumped 92.2% year over year to $44.4 million, driven by increased revenues but partially offset by decline in gross margin at the segment’s retail business due to higher promotional spending.

Outlook

Despite posting better-than-expected second-quarter results, PVH Corp. remains cautious for the remaining period of fiscal 2013 due to the prevalent uncertain macroeconomic situation. However, it has slightly raised the fiscal 2013 revenue guidance to $8.25 billion from $8.2 billion projected earlier.

The company’s Calvin Klein, Tommy Hilfiger and Heritage Brands are anticipated to contribute $2.75 billion, $3.42 billion and $2.08 billion, respectively toward the total revenue. Moreover, the company still expects fiscal 2013 adjusted earnings to come in at $7.00 per share. Currently, the Zacks Consensus Estimate stands at $7.18 per share.

PVH Corp. reiterated its intention to repay about $400 million of debt, and projects total interest expense of $195–$200 million in fiscal 2013. Tax rate is likely to be in the range of 25.5%–26.0%.

For third-quarter fiscal 2013, the company expects total revenue of $2.2 billion with Calvin Klein, Tommy Hilfiger and Heritage Brands contributing approximately $750 million, $900 million and $550 million, respectively.

During the quarter, the company is anticipating interest expense of nearly $50 million and tax rate of approximately 26.5%.

Based on the above-mentioned assumption, PVH Corp. expects third-quarter fiscal 2013 adjusted earnings to come in at approximately $2.20 per share. Currently, the Zacks Consensus Estimate stands at $2.34 per share.

Other Stocks to Consider

Currently, PVH Corp. carries a Zacks Rank #3 (Hold). Better-performing stocks in the apparel retail industry include Joe’s Jeans Inc. (JOEZ), Michael Kors Holdings Ltd. (KORS) and G-III Apparel Group, Ltd. (GIII). While Joe’s Jeans and Michael Kors both carry Zacks Rank #1 (Strong Buy), G-III Apparel has a Zacks Rank #2 (Buy).

 
G-III APPAREL (GIII): Free Stock Analysis Report
 
JOES JEANS INC (JOEZ): Free Stock Analysis Report
 
MICHAEL KORS (KORS): Free Stock Analysis Report
 
PVH CORP (PVH): Free Stock Analysis Report
 
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