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PVH Corp. Reports 2012 Fourth Quarter And Full Year Results

Stocks in this article: PVH

Full Year 2012 Consolidated Results:

  • Earnings per share on a non-GAAP basis was $6.58, which includes a $0.15 favorable impact related to the retirement plan accounting change and represents an increase of 21% as compared to the prior year’s earnings per share of $5.44 (as adjusted for the change). Absent the accounting change, non-GAAP earnings per share would have been $6.43 for 2012, which exceeded the top end of the Company’s previous guidance by $0.05, and $5.38 for 2011.
  • GAAP earnings per share was $5.87, which includes a negative impact related to the accounting change and represents an increase of 55% as compared to the prior year’s earnings per share of $3.78 (as adjusted for the change). The negative impact of the change was $0.09 per share in 2012 and $0.58 per share in 2011.
  • Revenue increased 3% to $6.043 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 5%, or $166.2 million, increase in the Tommy Hilfiger business, including a negative impact of approximately $110 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 10%. Revenue in the Tommy Hilfiger International business increased 2%, including a negative impact of 6% related to foreign currency translation. On a constant currency basis, revenue for the Tommy Hilfiger International business increased 8%, driven by European retail comparable store sales growth of 11% and strength in the European wholesale business, partially offset by continued weakness in Japan, where the Company is currently in the process of strategically repositioning and investing in the brand.
    • An 8%, or $85.1 million, increase in the Calvin Klein business, driven primarily by (i) a 12% increase in the Company’s Calvin Klein outlet retail business, which was attributable to new store openings, store expansions and a 5% increase in comparable store sales; and (ii) a 16% increase in the North American wholesale business. Royalty revenue increased 2% as compared to the prior year period, including a negative impact of 1% related to foreign currency translation. Continued global growth in women’s sportswear, dresses, footwear and handbags was partially offset by a decline in royalty revenue related to a reduction in the European bridge apparel and accessories business (relating to the Company’s announcement in the first quarter of 2012 that it would bring the business back in-house) and continued weakness in jeans and women’s underwear in Europe and the United States.
    • A 6%, or $98.9 million, decrease in the Heritage Brands business, including the negative impact of 6% related to the exited sportswear businesses. The Company’s ongoing Heritage Brands wholesale sportswear businesses experienced strong growth, while the dress furnishings business experienced a 7% decline due principally to a reduction in sales to J.C. Penney. Comparable store sales in the Heritage Brands retail business were relatively flat.
  • On a non-GAAP basis, earnings before interest and taxes increased $69.7 million to $751.6 million. This change resulted from:
    • An $84.1 million increase in the Tommy Hilfiger business due principally to the revenue increase mentioned above combined with gross margin improvement 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 $6.9 million increase in the Calvin Klein business attributed to the revenue increase discussed above, partially offset by a planned gross margin decline resulting principally from the impact of higher product costs experienced in the first half of the year.
    • A $12.0 million decrease in the Heritage Brands business due principally to the revenue decline mentioned above, combined with the negative impact of higher product costs principally in the first half of the year.
  • GAAP earnings before interest and taxes increased $169.2 million to $660.4 million. This change resulted from:
    • An increase of $139.1 million in the Tommy Hilfiger business due to the items described above, combined with 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 and a $34.3 million decrease in integration and restructuring costs.
    • An increase of $6.9 million in the Calvin Klein business as described above.
    • A $27.1 million decrease in corporate expenses due principally to the net impact of (i) a decrease of $48.0 million in recognized actuarial losses on retirement plans and (ii) a net $30.9 million decrease in integration, restructuring and debt modification costs; partially offset by (iii) $42.6 million of costs incurred in the current year related to the acquisition of Warnaco.
    • A $3.9 million decrease in the Heritage Brands business due to the items described above, partially offset by the absence of $8.1 million of business exit costs.
  • On a non-GAAP basis, the effective tax rate was 23.8% as compared to 28.3% in the prior year period. The GAAP effective tax rate was 20.1% as compared to 24.1% 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 achieved from the Tommy Hilfiger acquisition. In addition, positively impacting the 2012 GAAP effective tax rate was a benefit resulting from the recognition of previously unrecognized net operating loss assets and tax credits. Positively impacting the 2011 GAAP effective tax rate was the revaluation of certain deferred tax liabilities in connection with a fourth quarter decrease in the statutory tax rate in Japan.

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “2012 marked another year of strong performance and sustained growth for PVH, exceeding our expectations. The strength of our brand portfolio, led by Calvin Klein and Tommy Hilfiger, enabled us to navigate successfully through the global macroeconomic pressures and associated difficult consumer spending environment, which also included higher product costs and foreign currency volatility during the first half of the year.”

Mr. Chirico continued, “We completed our acquisition of Warnaco on February 13, 2013, and believe that the long term opportunities from this acquisition are significant. Having now owned the business for about 45 days, we believe that additional investments above our initial expectations are required to achieve our goal of rebuilding the global Calvin Klein jeanswear and underwear businesses. Therefore, we see 2013 as a year of investment and transition for the Warnaco business. These investments include: (i) enhancing the existing infrastructure (systems and supply chain), (ii) upgrading Calvin Klein jeanswear product design and quality with an emphasis on geographic differentiation, (iii) investing in in-store marketing and the in-store customer experience, (iv) adding appropriate talent to fill key design, marketing and merchandising positions, (v) rationalizing global excess inventory levels, and (vi) reducing and restructuring the off-price and club sales distribution in Europe and North America. Given these additional investments, we now project that the overall impact of the Warnaco transaction will be dilutive to 2013 earnings per share on a non-GAAP basis by approximately $0.25.”

Mr. Chirico concluded, “At the core of our success and our opportunity is the power of our global designer lifestyle brands, Calvin Klein and Tommy Hilfiger. 2013 will be a transitional year for PVH, during which we will build the foundation for long-term sustainable growth for our businesses across the world. I believe we will emerge stronger and the investments we will make this year will help drive the Calvin Klein business going forward. Further, we believe they will pave the way for enhanced profitability and stockholder value, translating into expected earnings per share growth in excess of 15% per year for 2014 and beyond.”

2013 Preliminary Guidance:

Please see the section entitled “2013 Full Year and First Quarter Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

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