Rebuilding, Euro Zone Weakness Cloud PVH Outlook

Company disappoints Wall Street with second-half guidance below consensus levels.

Emanuel Chirico

PVH Corp. expects continuing headwinds in southern Europe and ongoing investments in the Calvin Klein businesses acquired from The Warnaco Group Inc. to limit its second-half profitability.

This story first appeared in the September 10, 2013 issue of WWD.  Subscribe Today.

Reporting second-quarter results that beat analysts’ expectations on both the top and bottom lines, the New York-based firm held to its guidance for full-year adjusted earnings of $7 a diluted share and initiated guidance for adjusted earnings per share of $2.20 in the third quarter.

Both were below consensus estimates, which began the day at $7.14 and $2.30, respectively.

“Our integration efforts and investments in the newly acquired businesses will intensify in the second half of the year as we continue to invest in building a strong foundation for the future, which will have a negative impact on our year-over-year comparisons,” said Emanuel Chirico, chairman and chief executive officer of PVH, in a reference focused on the Calvin Klein jeans and underwear businesses acquired when PVH bought Warnaco for $2.9 billion earlier this year.

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He added that guidance for the year was being maintained at the $7 level as the company faced strong comparisons in the Tommy Hilfiger and Calvin Klein businesses from a year ago and took a “cautious outlook that the apparel consumer environment will remain soft and sales volatility will continue, especially in southern Europe.”

Reacting to the cautious guidance, issued upon the close of the stock market on Monday, investors sent shares down $4.86, or 3.7 percent, to $127.25 in after-hours trading following a trading day in which they’d risen $2.14, or 1.7 percent, to $132.11.

In the three months ended Aug. 4, the owner of the Calvin Klein, Tommy Hilfiger and Izod brands reported a net loss of $16 million, or 20 cents a diluted share, versus net income of $89.9 million, or $1.22, in the comparable 2012 period. Subtracting costs related to the acquisition and integration of Warnaco Group assets, adjusted EPS was $1.39.

Revenues increased 47 percent to $1.96 billion from $1.34 billion. Reflecting the shift in Warnaco’s figures from royalty-generating licensees to sales-generating assets, sales rose 54.5 percent to $1.88 billion while royalties fell 24.2 percent to $62.6 billion and advertising and other income dropped 48.3 percent to $17.9 million. Revenues were expected to hit $1.89 billion.

At Calvin Klein, revenues rose 166.9 percent to $670.6 million with contributions from former Warnaco properties contributing $376 million, net of reductions in royalties. Calvin Klein’s North American retail business registered a 6 percent increase in comparable sales while wholesale operations experienced double-digit growth.

PVH said the Calvin Klein business in Europe “remained under pressure,” with the troubled jeans unit remaining in transition and “weak in Spain and Italy, where it is primarily concentrated.”

PVH will hold a conference call this morning to discuss the results and outlook.