PVH, the owner of the Tommy Hilfiger and Calvin Klein brands, among others, reported fiscal second-quarter adjusted earnings of $1.51 a share, above the company's previous guidance of $1.40 to $1.45 a share and compared with $1.39 a share in the year-earlier quarter. The New York-based company reported GAAP earnings of $1.52 a share for the quarter ended Aug. 3.
PVH's revenue rose 4% from last year to $1.98 billion. Revenue excludes the Bass business, which was sold during the fourth quarter of 2013. The revenue gains in the quarter were fueled by a 9% increase in the company's Tommy Hilfiger business. Sales from Calvin Klein inched 1% higher in the quarter, while the Heritage Brands business was flat compared with the prior year.
The company reaffirmed its full-year adjusted earnings guidance of $7.30 to $7.40 a share. Several sell-side analysts upped their price targets on the stock following the earnings report.
Here's what analysts are saying on Thursday.
Evren Kopelman, Wells Fargo Securities (Market Perform; $137-$141 valuation range)
Improved sales trends in August and the Q2 2014 EPS beat ($1.51 vs. consensus and our estimate of $1.42) are lifting the PE multiple on PVH shares today (9/4) as confidence is now higher around the achievability of H2 estimates. In addition, the company noted that inventory in the channel is clean. The beat in the quarter was from Tommy Hilfiger and better gross margins. PVH did not flow through the Q2 EPS beat to full-year guidance due to the negative impact from a weaker Euro in the H2 2014. We are slightly raising our FY2014/2015 EPS estimates to $7.40/$8.55 from $7.38/$8.50, and our valuation range is now $137-141 (from $127-132) based on 16-16.5x our 2015E EPS. We think that for the next real move in the stock, we need to wait to see sell-through trends on new CK product.
We now believe that a cycle of downward revisions to earnings estimates is over, and will be looking for a combination of: 1) top-line stabilization; 2) gross margin expansion; and 3) more moderate SG&A expenditure growth to support earnings power going forwards. Soft growth expectations for Calvin and Heritage brands does suggest that the big turn in earnings power may have to wait until 2015 to materialize. We remain compelled by the potential for earnings acceleration with a rebound in Calvin Klein growth and continue to view investments in product and merchandising as appropriate long-term moves.
Bridget Weishaar, Morningstar (Buy; $145 PT)
We think that PVH's second-quarter earnings and full-year guidance showed the company is on track to start realizing some returns on its investments related to the Warnaco acquisition in the back half of this year. In our opinion, high-single- digit revenue growth in Tommy Hilfiger and continued progress in righting the Calvin Klein business is evidence of brand strength and PVH's narrow moat. We think investors are still underestimating the profitability upside that can be achieved through shifts in distribution channels and improved Calvin Klein jeans product. As such, we expect little change to our fair value estimate of $145 following these results and would recommend buying into the discount to fair value.
Robert Drbul, Nomura Securities (Buy; $180 PT)
We eagerly and confidently await the CK jeanswear rollout in September and October, and believe early indications have been largely positive. Men's has historically been a strong category within the brand, though we believe that the new Women's products and presentations at retail could provide upside.
Given the adverse expected impact from FX translations and continued softness in the Heritage segment, we are revising our 2H14 sales expectations. However, given the $0.06 beat in the quarter and confidence in the company's strategic investments, we are maintaining our FY14 and FY15 EPS estimates of $7.40 and $8.70, respectively, as we also expect a number of initiatives in place for Fall and Holiday selling could benefit the top line.
"We rate PVH CORP (PVH) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in net income, revenue growth, good cash flow from operations, growth in earnings per share and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Textiles, Apparel & Luxury Goods industry. The net income increased by 442.7% when compared to the same quarter one year prior, rising from -$10.30 million to $35.30 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 10.9%. Since the same quarter one year prior, revenues slightly increased by 1.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Net operating cash flow has significantly increased by 56.05% to -$51.40 million when compared to the same quarter last year. In addition, PVH CORP has also vastly surpassed the industry average cash flow growth rate of 4.17%.
- PVH CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PVH CORP reported lower earnings of $1.83 versus $5.87 in the prior year. This year, the market expects an improvement in earnings ($7.36 versus $1.83).
- The gross profit margin for PVH CORP is rather high; currently it is at 55.76%. Regardless of PVH's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.79% trails the industry average.
- You can view the full analysis from the report here: PVH Ratings Report
--Written by Laurie Kulikowski in New York.