Calvins Get Between PVH and Profit

Posted at 7:15 a.m. EDT on Thursday, March 28

Darned earnings, they can really screw it up, can't they?

Last night, PVH Corp. ( PVH), one of my absolute favorite companies, lowered the boom on 2013. The culprit? A new acquisition, Warnaco, failed to meet the targets that PVH set when the acquisition closed. So a buck-fifty-two goes to a buck-thirty-three for the quarter, and seven-forty-six goes to seven bucks.

Thud.

This was a tough one. I know I was hoping for better because I thought that the Warnaco acquisition that closed in February, bringing in the remaining Calvin Klein brands that were not held by PVH, would go smoothly for the company, the way the Tommy Hilfiger acquisition did several years ago.

That was wrong. As Manny Chirico, the terrific CEO at PVH, told me last night, many of the Calvin Klein business lines just weren't doing that well, particularly jeans in the U.S., Europe and Korea, the latter being especially weak.

Consequently, instead of the synergies, the guide-ups, and the accretions, we got the dreaded word, dilution, 25-cents worth, and a reset. In short, 2013's no longer a growth year for PVH. Now it is an investment year. And if jeans stay weak, an investment year could mean even less growth than Manny's telegraphing now. In other words, we don't know whether the 25 cents of dilution captures the entire weakness.

That's the bad news.

The good news is that once you ratchet things down and shake out all those who thought this deal would be accretive from the get-go, you might have a decent second-half investment. I would say that you might have a good trade today -- down 5% to 7% -- but enough analysts will be surprised by the sudden inconsistency of this smoothly running operation that the stock has to lay low and repair for a bit. Fortunately, for Manny and the stock, the analysts at J.P. Morgan and Wells Fargo nailed the progression here -- or the regression, depending upon how you feel -- and had softened the beach for the miss. Hats off to J.P. Morgan's Matthew Boss and Wells Fargo's Evren Kopelman for nailing the problems ahead of the quarter. Going into the number, I had thought they were being overly cautious. They were just being right. Very good research.

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