PVH’s stock fell on Wall Street Wednesday morning after the retailer revealed a top-line miss the day before. The quarterly report included news that top executive Trish Donnelly, chief executive officer of PVH Americas and Calvin Klein global, will exit the company, along with news of a 10 percent reduction to PVH’s global payroll.
As a result, shares of PVH — which includes the Calvin Klein, Tommy Hilfiger, Warner’s, Olga and True & Co. brands — closed down 10.49 percent Wednesday to $56.25 apiece. Year-over-year, the company’s stock is down approximately 53 percent.
“Macro headwinds remain an overhang entering [the second half],” Ike Boruchow, senior retail analyst at Wells Fargo, wrote in a note. “Given our concerns around apparel [average unit retails], inflation and slowing consumer demand trends across the U.S., we remain on the sidelines. While PVH is doing what they can to manage through the tough macro backdrop (i.e. cost cuts), we believe the space will remain in a difficult place for the foreseeable future.”
Boruchow’s firm lowered its full-year earnings per share forecast to $8.14 apiece, down from $8.82, but maintained its $70 price target, rating the stock “equal weight.” The analyst also pointed out that things like excess inventory (and likely increased promotional activity in the back half), along with operations management in North America continue to present challenges for PVH. The latter of which he referred to as “lackluster and well below pre-pandemic levels. Over the last four quarters, Tommy and Calvin’s [North American Operations management] averaged, [less than] 1 percent and [roughly] 5 percent, compared to [roughly] 9.5 percent and [roughly] 11.5 percent, respectively, pre-pandemic.
“Bigger picture, after PVH appeared to be engineering a soft landing 90 days ago, today’s print highlights a worsening consumer backdrop, particularly for the apparel category,” Boruchow added.
But PVH CEO Stefan Larsson defended the company, telling analysts and associates alike that the quarterly results don’t accurately reflect its underlying strength.
In an internal company document obtained by WWD, Larsson praised the company’s fundamentals and explained to employees the go-forward strategy.
“We had a strong start to the second quarter, with our momentum from the first quarter continuing through May. In June, we started feeling some effects of the current macroeconomic conditions in North America wholesale and parts of Europe,” Larsson wrote in Tuesday’s note. “Despite this, through the execution of our PVH+ Plan and our ability to pivot in response to changing conditions, we delivered a strong performance and we beat our earnings [per share] guidance.
“Our strong execution is apparent in many parts of the company,” the CEO continued. Some of the growth drivers he cited included a 25 percent growth in the European Calvin Klein and Tommy businesses, in local currency, compared with pre-pandemic times; growth in Asia (outside of mainland China where COVID-19-related lockdowns persist), including Australia, Southeast Asia and South Korea; overall Calvin Klein and Tommy North American store revenues, which increased 8 percent during the quarter, compared with last year, and strength in Calvin Klein’s hero underwear business.
“Looking ahead, we are planning our business prudently,” Larsson wrote. “It is important to remember that despite the current level of macro challenges, we continue to grow in a tough market, which speaks to the strength of our two brands, our teams and our ability to execute the PVH+ Plan. In tough times, successful companies like PVH focus on what is within our control. Strengthening our foundation and taking market share when macro conditions are challenging will pay dividends when the environment improves, which it inevitably will. For that reason, effectively executing the PVH+ Plan to unlock the full potential of Calvin and Tommy — by connecting them closer to the consumer than ever before — has never been more important.”
Larsson went on to say the decision to reduce headcount was “the hardest to make and we take great care in making them.”
But he added, “to drive efficiencies, we need to evolve and align our work with the growth drivers of the PVH+ Plan. This means simplifying how we work, streamlining decision-making to be closer to the consumer and eliminating unnecessary work.”
The reduced headcount is expected to save the company roughly $100 million.
“A big portion of the savings we generate will be reinvested in the key drivers of the PVH+ Plan,” Larsson wrote in the memo. “Important examples include investing in global product creation capabilities, increasing consumer engagement by building out the type of work we do with our best global influencer talent and work in digital channels like replatforming the North America e-commerce business.”
PVH is just one of many companies recently plagued with excess inventory in the midst of rapidly changing consumer shopping patterns. In the case of Calvin Klein and Tommy’s parent company, executives on Wednesday morning’s conference call attributed its surplus inventory to softened activity in the wholesale channels and some partners pulling back as a result.
Larsson stood by his earlier statements about the company on the conference call, telling analysts it’s PVH’s ability to execute on its plans that will ultimately lead to the firm’s long-term success.
“What gives me confidence from the underlying drivers of gross margin rate going forward is, again, the ability to execute on the PVH+ drivers in being even more disciplined on connecting the right product categories to the consumer with increasing level of focus in the assortment of the hero products,” he said on the call. “So we are early, early days in unlocking what’s within our control.”