PVH Corp. Form 10-Q Summary
Reporting period: Thirteen weeks ended May 2, 2021, compared with the thirteen weeks ended May 3, 2020. Although the request metadata says 2020 Q1, the filing covers 2021 Q1; the prior-year comparison was heavily affected by COVID-19 closures and impairment charges.
Business context and results
PVH is a global apparel company whose principal brands include Tommy Hilfiger and Calvin Klein, alongside Heritage Brands. It sells through wholesale, owned stores and digital channels, and earns licensing revenue.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $2.079 billion | $1.344 billion |
| Gross profit / gross margin | $1.229 billion / 59.1% | $666 million / 49.5% |
| SG&A | $1.039 billion | $940 million |
| Income (loss) before interest and taxes | $197.4 million | $(1.218) billion |
| Net income (loss) attributable to PVH | $99.9 million | $(1.097) billion |
| Diluted earnings (loss) per share | $1.38 | $(15.37) |
| Net cash used by operating activities | $189.1 million | $142.8 million |
Revenue rose 55% year over year. Wholesale net sales increased 53%, retail net sales 66%, and owned digital commerce sales 66%; sales through digital channels, including wholesale customers’ digital businesses, were about 25% of total revenue. The filing attributes much of the comparison to store closures and weak demand in Q1 2020. International business revenue exceeded pre-pandemic Q1 2019 levels; North America remained more challenged.
Tommy Hilfiger International revenue was $826.9 million and Calvin Klein International revenue was $537.0 million. Their reported segment operating income was $167.3 million and $96.4 million, respectively. Heritage Brands Retail is being wound down; the segment is expected to cease operations after remaining stores close.
Liquidity, debt and financial position
- Cash and cash equivalents were $913.2 million at May 2, 2021, down from $1.651 billion at January 31, 2021. The decrease included $503.7 million of term-loan repayments.
- Cash used by operations was $189.1 million, driven mainly by working-capital changes, including higher receivables and inventory. Capital expenditures were $49.1 million.
- Long-term debt, including current maturities, had a carrying amount of $3.045 billion; short-term borrowings were $13.8 million. PVH reported approximately $1.5 billion of borrowing capacity available.
- PVH repaid $500 million of long-term debt voluntarily during the quarter and expected approximately $700 million of voluntary repayments during 2021. It also reported mandatory repayments of $18.9 million for the remainder of 2021.
- PVH was compliant with its financing covenants at quarter-end. It said it intended to terminate the temporary covenant-relief period early, immediately after filing this report. The relief restrictions had barred dividends and share repurchases.
Material changes, outlook and risks
- Gross margin improved 960 basis points, attributed principally to less promotional selling, the absence of substantial prior-year inventory reserves, favorable currency effects on international inventory costs and a greater revenue mix from higher-margin international segments.
- The prior-year quarter included $961.8 million of noncash impairment charges, including $879.0 million for goodwill, $54.5 million for other intangible assets, $16.0 million for store assets and $12.3 million for an equity-method investment. No comparable goodwill or intangible-asset impairment was recorded in Q1 2021.
- Q1 2021 included $43.3 million of costs for workforce and real-estate reductions, including $28.1 million of long-lived asset impairments. These actions are expected to generate about $60 million in annual savings; roughly $27 million of additional costs were expected later in 2021. The Heritage Brands Retail exit was expected to cost about $50 million in total, with $37 million incurred to date.
- Management forecast 2021 revenue growth of 24%–26% versus 2020, including an approximately 3% favorable currency effect. It expected full-year gross margin to improve, but less sharply than in Q1; SG&A as a percentage of revenue to decline; and an effective tax rate of 17.5%–19.0%.
- Management expected 2021 capital expenditures of $300–$325 million and interest expense, net, of about $110 million. It expected foreign-currency translation to increase 2021 revenue by about $220 million and net income by about $30 million, and transactional currency effects to increase net income by about $35 million.
- Supply-chain disruptions, including vessel and container shortages and factory delays related to COVID-19 resurgences, were delaying some inventory orders. The outlook assumed roughly four-to-six-week delays for certain orders, but not more severe disruption. Further store closures or extended lockdowns were not included in the revenue outlook.
- Other key risks include pandemic-related demand and collection uncertainty, continued North America weakness and limited tourism, foreign-exchange movements, execution of restructuring and the ability to maintain covenant compliance if earnings or operating cash flow weaken. The filing reported no material change to previously disclosed risk factors and said pending litigation was not expected to materially affect financial position.
Important facts for investors to verify
- Whether reopening, consumer demand and international tourism support the 2021 revenue outlook, particularly in North America.
- Whether shipping and factory delays exceed the four-to-six-week assumption and affect inventory availability or sales.
- Actual progress on planned debt repayments, liquidity, covenant compliance and the intended early end to covenant relief.
- Restructuring costs, timing of store closures and realization of the expected annual savings.
- Whether reported margin improvement persists after the unusually weak, impairment-heavy prior-year comparison.