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PVH Corp. Reports 2012 Third Quarter Results

Stocks in this article: PVH

On a GAAP basis, earnings before interest and taxes increased 21% to $237.4 million as compared to $196.8 million in the prior year’s third quarter. The increase was due principally to the net effect of the changes discussed above, combined with the net effect of (i) the absence of $20.7 million of expenses incurred in connection with the Company’s buyout of the perpetual license for Tommy Hilfiger in India; (ii) a $2.7 million decrease in integration and restructuring costs associated with the Tommy Hilfiger acquisition; and (iii) $6.4 million of costs incurred in the current year’s third quarter related to the pending acquisition of The Warnaco Group, Inc.

Net interest expense decreased $3.3 million to $28.3 million as compared to the prior year’s third quarter, due principally to lower debt levels in the current quarter.

The effective tax rate was 21.9% on a non-GAAP basis as compared to 29.4% on a non-GAAP basis in the prior year’s third quarter. The effective tax rate was 20.9% on a GAAP basis, as compared to 32.1% on a GAAP basis in the prior year’s third quarter. Continuing to positively impact the Company’s 2012 tax rates is an increase in the proportion of earnings attributable to foreign jurisdictions that are subject to favorable tax rates, as well as the continuation of the tax synergies resulting from the Tommy Hilfiger acquisition. In addition, positively impacting the third quarter 2012 GAAP effective tax rate was a benefit resulting from previously unrecognized tax credits.

The non-GAAP effective tax rate in the third quarter was lower than the Company’s previous guidance due to the timing of certain discrete tax items, which benefited the Company’s third quarter non-GAAP earnings per share by approximately $0.03 and were originally planned to occur in the fourth quarter of the current year.

Nine Months Consolidated Results:

  • Earnings per share on a non-GAAP basis was $4.90 as compared to $4.20 for the prior year.
  • GAAP earnings per share was $4.70 as compared to $3.25 for the prior year.
  • Revenue increased 1% to $4.407 billion, including a negative impact of 4% attributable to foreign currency translation and the exited sportswear businesses. The overall increase in revenue was due to the net impact of:
    • A 4%, or $90.9 million, increase in the Tommy Hilfiger business, including a negative impact of approximately $100 million, or 4%, related to foreign currency translation. Within the Tommy Hilfiger North America business, revenue increased 10%, principally driven by retail comparable store sales growth of 11%. Revenue in the Tommy Hilfiger International business was relatively flat to the prior year period, including a negative impact of 7% related to foreign currency translation. On a constant currency basis, revenue for the Tommy Hilfiger International business increased 7%, driven by European retail comparable store sales growth of 12%, partially offset by continued weakness in Japan, where the Company is currently in the process of strategically repositioning and investing in the brand.
    • A 6%, or $46.2 million, increase in the Calvin Klein business, driven primarily by a 7% increase in comparable store sales within the Company’s Calvin Klein outlet retail business and an 8% increase in the North American wholesale business. Royalty revenue increased 1% as compared to the prior year, including a negative impact of 2% related to foreign currency translation.
    • A 7%, or $88.1 million, decrease in the Heritage Brands business, including the negative impact of 5% related to the exited sportswear businesses. The Company’s dress furnishings business experienced a 9% decrease due to a reduction in sales to a mid-tier department store retailer. Comparable store sales in the Heritage Brands retail business were relatively flat.
  • On a non-GAAP basis, earnings before interest and taxes increased $14.4 million to $560.2 million. This change resulted from:
    • A $52.5 million increase in the Tommy Hilfiger business due principally to the revenue increase mentioned above combined with an increase in gross margin due primarily to higher average unit retail selling prices globally. Partially offsetting this increase was the negative impact of approximately $15 million related to foreign currency translation.
    • A $3.2 million increase in the Calvin Klein business attributed to the revenue increase discussed above, partially offset by a planned decrease in gross margin resulting principally from the impact of higher product costs experienced in the first half of the year.
    • A $28.1 million decrease in the Heritage Brands business due principally to the revenue decrease mentioned above, combined with a planned decrease in gross margin rates resulting principally from the impact of higher product costs experienced in the first half of the year.
    • A $13.2 million decrease attributable to an increase in corporate expenses due principally to additional pension expense resulting from lower discount rates.
  • GAAP earnings before interest and taxes increased $88.6 million to $539.3 million. Earnings increased $98.5 million and $3.2 million in the Tommy Hilfiger and Calvin Klein businesses, respectively, while earnings in the Heritage Brands business decreased $21.0 million and corporate expenses decreased $7.8 million. These earnings changes were due to the above-mentioned items combined with lower integration, restructuring and debt modification costs, partially offset by the $6.4 million of costs incurred in the current year’s third quarter related to the acquisition of Warnaco.
  • On a non-GAAP basis, the effective tax rate was 23.9% as compared to 31.9% in the prior year period. The GAAP effective tax rate was 23.6% as compared to 33.3% for the prior year period. The Company’s 2012 tax rates were positively impacted by an increase in the proportion of earnings attributable to foreign jurisdictions that are subject to favorable tax rates, as well as the continuation of the tax synergies resulting from the Tommy Hilfiger acquisition. In addition, positively impacting the 2012 GAAP effective tax rate was a benefit resulting from previously unrecognized tax credits.

Balance Sheet:

The Company ended the quarter with a net debt position of $1.597 billion, comprised of $1.874 billion of debt, net of $276.6 million of cash. During the third quarter, the Company made payments totaling $77.7 million on its outstanding term loans, for total term loan payments of approximately $170 million during the first nine months of 2012 and approximately $870 million since the date of the Tommy Hilfiger acquisition, the majority of which were voluntary. The Company currently plans to make term loan payments of approximately $130 million during the remainder of 2012.

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