PVH Corp. has entered into a definitive agreement to sell its Speedo North America business to Pentland Group, the U.K.-based parent company of Speedo International, for $170 million in cash, subject to a working capital adjustment.
Speedo International has licensed the Speedo trademark to a PVH subsidiary (Warnaco Swimwear Inc.) for perpetual use in North America and the Caribbean, which will come to an end. The transaction is expected to close in the first quarter of PVH’s fiscal 2020 year.
“The strategic announcement aligns with PVH’s goal to optimize and streamline its Heritage Brands business in the ever-evolving retail environment and focus on delivering sustainable profitable growth of its global brands, Calvin Klein and Tommy Hilfiger. I am pleased to see Pentland Group reunite the Speedo business globally, as they are best positioned to capture the full potential of the iconic Speedo brand,” said Emanuel Chirico, chairman and chief executive officer of PVH.
Chirico told WWD its Speedo business accounted for $225 million in sales and $18 million in profits for PVH.
Spring 2020 will be the last Speedo collection under PVH’s direction. There is a transition in place that will provide support and warehouse and distribution as they transition to Pentland’s platforms and systems.
The North American business will continue to be based in Los Angeles, and the staff is expected to stay. Speedo was managed as part of PVH’s Heritage portfolio, which consists of Speedo, Izod, Van Heusen and Arrow, and is run by Heritage president Geoff Barrett. He will stay with PVH, Chirico said.
Discussing why he wanted to sell Speedo, Chirico said, “We always described Speedo as a gift with purchase when we bought Warnaco [in 2012]. It was always about reuniting the Calvin Klein brand. It just never fit in our portfolio. One, it was on the West Coast, and two it was a swimwear brand, as opposed to what we really are good at, which is running global lifestyle brands. Three, we didn’t control the brand, we were a licensee. Even though it was perpetual, we didn’t have control over the brand globally. That made it a challenge.”
Further, he said, the brand needs to be managed and owned globally. “For all of those reasons, this transaction allows us to streamline our heritage business and focus in on our Tommy Hilfiger and Calvin business, which are 90 percent of our profits and really the growth vehicles for the company.”
Asked what he expects to do with the proceeds, Chirico said, “In the short-term we’ll be buying back PVH stock and we’ll continue to be acquisitive.”
Pentland Group is a privately owned global company that owns and invests primarily in retail and wholesale businesses in the sports, outdoor and sports fashion sectors. The company owns the Berghaus, Canterbury, Ellesse and SeaVees brands and acquired Speedo in 1991. Pentland has subsequently built the business into the leading performance swimwear brand globally.
Speedo was started in Sydney, Australia, in 1914. Since developing the first racer-back in the Twenties, Speedo has been behind many of the major innovations in swimwear, and more Olympic gold medals have been won in Speedo than any other brand.
Andy Long, ceo of Pentland Group’s Pentland Brand division, said, “We’ve had a great partnership with PVH and they’ve done an incredible job in raising the profile of the Speedo brand and growing the business in North America during their time as licensee.”
“The ability to develop Speedo as one global brand is obviously quite significant and great for the brand as one business,” Long explained. “We’ve been really happy with the partnership with first Warnaco and then PVH, and I think there was always a recognition that it was only going to happen at a time of mutual convenience,” he said. Long said they both came to the realization, “as the world becomes more global, it was becoming increasingly hard to manage as two parts.”
The acquisition by Pentland comes ahead of the 2020 Tokyo Olympics and Paralympics and the participation of many Speedo athletes, Long said. “With the Tokyo Games this year, now is the right time to bring Speedo North America back into our brand portfolio. Pentland has a strong track record of investing in people and international brands, and we’re looking forward to welcoming the Speedo North America team into the Pentland family and working together on the next chapters in the Speedo success story.”
Discussing his strategy for the brand, Long said, “Ultimately there will be opportunities in the way we source for the brand, making sure we get the best development across the U.S. and the global market.” He said that this gives Pentland scale and bigger relationships with a lot of key retailers. They’ll also look at the global athlete roster and will be making those decisions as one business, rather than two. And, the deal gives them an opportunity to bring more of their other brands to North America.
As a result of the agreement, PVH updated its fourth-quarter and full-year 2019 earnings outlook.
PVH projects earnings per share on a GAAP basis for the fourth quarter 2019 will be about 20 cents. The company projects EPS on a GAAP basis for the full-year 2019 will be about $6.32. The projected fourth-quarter and full-year 2019 EPS on a GAAP basis include an estimated pre-tax non-cash loss of about $130 million, expected to be recorded related to the sale of the company’s Speedo North America business to Pentland, and the de-consolidation of the Speedo net assets, as well as the estimated tax effect of the loss.
On a non-GAAP basis, the company projects its EPS for the fourth quarter and the full-year 2019 will be at least $1.79 and $9.45, respectively, the high end of its guidance previously disclosed.
“We’re very comfortable that we’ll exceed both sales and earnings. We’re having a strong fourth quarter despite the environment, our international business is stronger than our U.S. business, each of our brands are either on or exceeding plan in the U.S,” Chirico said.