Just after “pretty handily” topping third-quarter expectations — with strength in Europe and a more profitable showing from Calvin Klein — the chairman and chief executive officer of PVH told WWD that he’s looking for the dealmaking stars to align next year.
“The financing market is in good shape right now,” Chirico said. “So I think the ability to fund an acquisition and then [with] the strength of our balance sheet, we’re in an excellent position to do something.
“Valuations have been under pressure in the last nine months and there needs to be some leveling out,” he said, noting would-be takeover targets are still looking to the valuations they had 12 to 15 month ago and aren’t ready to give them up yet.
“Deals are going to have to be done creatively,” the ceo said. “As we go into the next year, we’re hoping that there will be more receptivity.”
Chirico has been a key leader at PVH as it grew from its men’s wear roots to a fashion powerhouse through the acquisitions of Calvin Klein, Tommy Hilfiger, Warnaco and others. The firm’s market capitalization stands at $7.5 billion now, and while that’s well below the $16.2 billion Arnault is paying for Tiffany, it’s enough make PVH one of fashion’s biggest players.
Overall in the third quarter, PVH saw its business in Europe outperform as North America was on plan and Asia was challenging with Hong Kong in turmoil and shoppers on the mainland pulling back in the “premium” apparel tier.
Net income fell 13.9 percent in the third quarter to $209.2 million, or $2.82 a share, from $243.1 million, or $3.15, a year earlier.
Adjusted earnings tallied $3.10 a share, up from the $2.95 to $3 PVH forecast and ahead of the $2.99 analysts expected on average.
Revenues for the three months ended Nov. 3 rose 2.5 percent to $2.59 billion from $2.52 billion.
Tommy Hilfiger continued to grow strongly on the top line, with sales expanding by 10 percent to $1.2 billion, while adjusted earnings before interest and taxes slipped to $182 million from $183 million due to gross margin pressure in North America.
Calvin Klein saw more modest growth, with revenues rising by 1 percent to $969 million, but adjusted earnings before interest and taxes jumped to $129 million from $121 million with gross margins improving as the brand focused in on its core offerings.
“Operating margins were up about 400 basis points,” Chirico said of the Calvin business. “Clearly, we’re seeing good sell-through of our core denim” and strength in underwear and accessories.
In Asia, Chirco said the business has hurt by the protests in Hong Kong, which has prompted store closures. Hong Kong accounts for about 1 percent of total revenues, or about $100 million at the company. And the ceo said the business was down “somewhere in the 40 percent range.”
On the mainland, he said consumers are feeling pressure from the trade war, hurting foot traffic in the company’s stores, but that the Tommy Hilfiger and Calvin Klein brands were still showing strength online.
PVH isn’t betting on a big holiday, but the ceo said it’s ready to pounce if business is strong.
“Overall, look at the economics of the consumer, it seems like the consumer’s healthy and the consumer’s going to be spending,” he said. “How much of that disposable income is going to be gone into apparel? That’s what we’re all trying to figure out. We’re taking a cautious approach to the fourth quarter. We’re going to really watch the consumer, watch the business.”
For the full year, PVH raised its outlook for adjusted earnings per share to $9.43 to $9.45, up from the $9.30 to $9.40 earnings previously forecast.