PVH Corp. Form 10-K Summary
Period clarification: The supplied filing is PVH’s Form 10-K for fiscal 2019, the 52 weeks ended February 2, 2020—not a 2018 Q4 filing. It includes selected unaudited fourth-quarter data, summarized below.
Business context and reporting period
PVH is a global apparel company whose principal businesses are Tommy Hilfiger, Calvin Klein and Heritage Brands. Fiscal 2019 revenue was $9.9 billion; more than half was generated outside the United States, and Tommy Hilfiger and Calvin Klein together represented approximately 85% of revenue.
Key financial metrics
| Metric | Fiscal 2019 | Fiscal 2018 |
|---|---|---|
| Total revenue | $9.909 billion | $9.657 billion |
| Gross profit / gross margin | $5.388 billion / 54.4% | $5.308 billion / 55.0% |
| SG&A / share of revenue | $4.715 billion / 47.6% | $4.433 billion / 45.9% |
| Income before interest and taxes | $559 million | $892 million |
| Net income attributable to PVH | $417 million | $746 million |
| Diluted earnings per share | $5.60 | $9.65 |
| Cash provided by operating activities | $1.020 billion | $853 million |
| Capital expenditures | $345 million | $380 million |
| Cash and cash equivalents at year-end | $503 million | $452 million |
| Long-term debt at year-end | $2.694 billion | $2.819 billion |
At February 2, 2020, PVH reported total debt principal of $2.725 billion, including short-term borrowings, and a current ratio of 1.4. The filing reports working capital of $1.033 billion. Debt-to-total-capital was 32.3%; net debt-to-net-capital was 28.1%.
Material changes and unusual items
- Revenue rose 3% from fiscal 2018, but attributable net income fell about 44%. The stronger dollar reduced fiscal 2019 revenue by approximately $215 million and net income by approximately $25 million versus 2018.
- Gross margin declined 60 basis points, reflecting more promotional selling at Tommy Hilfiger North America, inventory reserves, acquisition-related inventory adjustments and U.S. tariffs on China imports.
- Fiscal 2019 included a $142 million noncash loss related to the planned Speedo North America sale, including a $116 million impairment of its perpetual license right; a $113 million noncash gain on remeasurement of previously held Australia-related investments; $103 million of Calvin Klein restructuring costs; $60 million of socks and hosiery transaction costs; and $55 million of Tommy Hilfiger U.S. store-closure costs. Non-service pension and postretirement cost was $90 million, including a $98 million actuarial loss.
- Fourth-quarter revenue was $2.601 billion versus $2.484 billion in the prior-year quarter. PVH-attributable results were a loss of $67 million, or $0.93 diluted loss per share, versus income of $159 million, or $2.09 diluted EPS. The 2019 quarter included the Speedo loss and pension actuarial loss, among other items.
- Operating cash flow increased to $1.020 billion, principally reflecting favorable working-capital changes, including receivables and inventories. Cash increased by $51 million after investing and financing activity, including $325 million of share repurchases, $71 million of long-term debt repayments and acquisition payments.
Outlook, risks and contingencies
- Management warned that COVID-19 was significantly affecting stores, wholesale customers, licensees and supply chains, and expected a significant negative impact on 2020 revenue and net income. The duration and financial impact were not reasonably estimable.
- PVH expected 2020 revenue and gross margin to decline significantly; SG&A expense dollars were expected to be significantly lower, but SG&A as a percentage of revenue was expected to rise. Planned 2020 capital expenditures were approximately $190 million. These expectations were subject to substantial uncertainty.
- In March 2020, borrowings under revolving facilities, other short-term facilities and commercial paper increased from $50 million at fiscal year-end to approximately $930 million to bolster cash and financial flexibility. Management expected net interest expense to increase.
- PVH agreed to sell Speedo North America for $170 million in cash, subject to a working-capital adjustment; closing was expected in the first quarter of 2020. The company also suspended its dividend policy in response to COVID-19 impacts, after declaring a $0.0375-per-share dividend payable March 31, 2020.
- Key risks include retailer concentration and store closures, changing consumer demand and fashion trends, promotional and margin pressure, foreign exchange, tariffs and sourcing disruption, dependence on licensees and third-party manufacturers, leverage, pension volatility, and potential goodwill, intangible-asset or store-asset impairments. The five largest customers generated 18.4% of revenue; no single customer exceeded 10%.
- PVH reported compliance with debt covenants at February 2, 2020 and stated that pending litigation was not expected to have a material adverse effect on financial position. The filing does not provide a clear quantified estimate of the total potential COVID-19 financial impact.
Important facts for investors to verify
- Confirm the applicable reporting period: this is fiscal 2019, not fiscal 2018 Q4; use the filing’s unaudited quarterly table for quarter-specific comparisons.
- Track subsequent COVID-19 effects on sales, inventory, receivable collections, store operations, supply chains and impairment charges against management’s stated uncertainty.
- Verify post-year-end borrowing, cash and liquidity levels, covenant headroom, and the timing and terms of the Speedo sale and Australia-related redemption payments.
- Assess whether reported earnings and margins excluding significant restructuring, impairment, pension and acquisition-related items provide a useful view of ongoing performance.
- Monitor the planned dividend suspension, share repurchases, and actual 2020 capital spending and cash flows.