PVH Corp. Form 10-Q Summary
Period clarification: The supplied filing is for the 13 and 26 weeks ended August 5, 2018, compared with periods ended July 30, 2017. This does not match the request metadata of “2017 Q2.”
Business context and reporting period
PVH is a global branded apparel company whose principal businesses are Calvin Klein, Tommy Hilfiger and Heritage Brands. It sells through wholesale, company-operated retail and digital channels, and earns licensing revenue. The filing reports second-quarter and first-half fiscal 2018 results.
Key financial results
| Metric | 13 weeks ended Aug. 5, 2018 | 13 weeks ended July 30, 2017 | 26 weeks ended Aug. 5, 2018 | 26 weeks ended July 30, 2017 |
|---|---|---|---|---|
| Total revenue | $2,333.7m | $2,069.9m | $4,648.3m | $4,058.9m |
| Gross profit / margin | $1,297.0m / 55.6% | $1,147.3m / 55.4% | $2,588.0m / 55.7% | $2,228.1m / 54.9% |
| Income before interest and taxes | $231.4m | $180.5m | $475.7m | $293.7m |
| Net income attributable to PVH | $165.2m | $119.7m | $344.6m | $190.1m |
| Diluted EPS | $2.12 | $1.52 | $4.42 | $2.41 |
| Operating cash flow | Not separately reported for the quarter | $310.9m | $177.3m |
Revenue grew 13% in the quarter and 15% in the first half. First-half wholesale net sales were $2,414.6m and retail net sales were $2,002.1m. First-half SG&A was $2,124.5m, or 45.7% of revenue, versus $1,931.9m, or 47.6%. Net interest expense for the first half was approximately $57.5m.
First-half capital expenditures were $164.9m, implying approximate free cash flow of $146.0m before other investing and financing activity. Cash and equivalents were $431.1m at August 5, 2018, down from $493.9m at fiscal year-end. Inventories were $1,731.0m.
At August 5, 2018, long-term debt was $2,893.5m and short-term borrowings were $85.4m. Cash less these borrowings implies net debt of approximately $2,547.8m. Current assets were $3,166.0m and current liabilities were $1,835.7m. The company reported compliance with its financing covenants.
Material changes versus prior comparable periods
- Quarterly revenue growth was led by Calvin Klein and Tommy Hilfiger; Heritage Brands revenue declined modestly. Tommy Hilfiger International revenue increased 20% in the quarter and Calvin Klein International increased 16%, including positive currency effects.
- First-half gross margin increased 80 basis points, supported by international business mix and less promotional selling, particularly at Tommy Hilfiger North America. In the quarter, Calvin Klein margin was pressured by inventory clearance tied to its Fall 2018 denim relaunch.
- First-half earnings and SG&A leverage benefited from the absence of prior-year costs, including the Li & Fung termination, Tommy Hilfiger New York office relocation and North American distribution-network consolidation. The prior-year first half also included a $9.4m pension settlement loss.
- First-half operating cash flow increased to $310.9m from $177.3m, although inventory and receivables absorbed cash. The company repaid $85m of term debt and repurchased $137.5m of shares in the first half.
- Foreign currency translation was a significant factor: first-half revenue growth included approximately $155m of favorable translation across Calvin Klein and Tommy Hilfiger, while other comprehensive income included $338.1m of unfavorable currency translation adjustments.
Outlook, commentary and risks
- Management expected full-year 2018 revenue to increase approximately 7%, including about a 1% favorable currency effect; expectations were approximately +8% for Calvin Klein, +9% for Tommy Hilfiger and +1% for Heritage Brands.
- Management expected full-year gross margin to increase and SG&A as a percentage of revenue to decrease. Forecasts included an effective tax rate of 13.5%–14.5%, net interest expense of approximately $117m and capital expenditures of approximately $450m.
- Planned full-year cash uses included approximately $250m of long-term debt repayments and $200m–$250m of share repurchases. Management projected currency effects of approximately +$60m to revenue and +$10m to net income at then-current exchange rates.
- Key risks include foreign exchange movements, consumer demand and promotional activity, retail-sector disruption, inventory management, sourcing costs and trade restrictions, leverage and interest rates, tax-law implementation, and reliance on licensees and business partners. Management cautioned that seasonal interim results are not necessarily indicative of full-year results.
- The 2017 Tax Act accounting remained subject to measurement-period adjustments; no adjustments to provisional amounts were recorded in the first half. The company also noted that upcoming lease-accounting adoption was expected to significantly increase reported assets and liabilities, but not materially affect operating results.
- Management said pending litigation was not expected to have a material adverse effect. No material changes to reported risk factors were identified, and disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm the intended reporting year: the filing covers 2018 Q2, not 2017 Q2.
- Assess whether revenue and margin growth persisted after the disclosed foreign-currency benefit and prior-year cost comparisons.
- Track inventory growth, working-capital cash use, and the effect of seasonal third-quarter sales on liquidity.
- Review debt repayment, variable-rate exposure, refinancing needs and planned buybacks against cash generation.
- Monitor the full-year guidance assumptions, including currency, tax-rate estimates and the expected benefit from reduced promotional activity.