PVH Corp. Form 10-Q Summary
Period clarification: The filing covers the thirteen weeks ended May 5, 2019, compared with the thirteen weeks ended May 6, 2018. This differs from the request metadata stating 2018 Q1.
Business context and reporting period
PVH is a global apparel company whose principal brands include Tommy Hilfiger and Calvin Klein, alongside Heritage Brands. It sells through wholesale, retail and licensing channels. Results are seasonal and the company cautions that this quarter is not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $2,356.3 million | $2,314.6 million |
| Gross profit / margin | $1,295.9 million / 55.0% | $1,291.0 million / 55.8% |
| Income before interest and taxes | $135.1 million | $244.3 million |
| Net income attributable to PVH | $82.0 million | $179.4 million |
| Diluted earnings per share | $1.08 | $2.29 |
| Cash used by operating activities | $73.2 million | $125.7 million |
| Capital expenditures | $76.7 million | $76.7 million |
Revenue increased approximately 2%, while PVH-attributable net income and diluted EPS each declined by about 54%. Gross margin fell 80 basis points, primarily due to increased promotional selling in North America. SG&A rose to $1,161.5 million, or 49.3% of revenue, from $1,053.0 million, or 45.5%.
At May 5, 2019, cash and cash equivalents were $494.3 million. Current assets were $3,253.4 million and current liabilities were $2,206.6 million. Short-term borrowings were $299.7 million, current long-term debt was $31.0 million, and long-term debt was $2,759.4 million. Total debt on these balance-sheet lines was approximately $3.09 billion. Operating lease liabilities were $1,833.7 million, newly recognized under lease accounting. The filing does not provide a single net-debt figure.
Cash from financing activities was $198.3 million, including proceeds and repayments associated with the April refinancing. Cash increased by $42.3 million during the quarter. The company used $77.5 million for treasury-share acquisitions in the cash flow statement.
Material changes versus the prior comparable period
- Tommy Hilfiger revenue increased 4% overall; Tommy Hilfiger International grew 4%, with comparable store sales up 9%. Tommy Hilfiger North America comparable store sales declined 4%.
- Calvin Klein revenue was approximately flat in aggregate; Calvin Klein International revenue fell 2% and comparable store sales declined 4%. Calvin Klein North America revenue rose 2%, while comparable store sales declined 5%.
- Heritage Brands revenue increased about 1%, supported by wholesale growth; comparable store sales declined 6%.
- Operating income was pressured by $54.9 million of costs associated with U.S. Tommy Hilfiger store closures, $70.3 million of Calvin Klein restructuring costs and $5.2 million of debt modification and extinguishment costs. The filing separately reports $83.7 million of long-lived asset impairments; these amounts overlap and should not be added as if independent.
- PVH refinanced its prior senior secured facilities on April 29, 2019 with senior unsecured facilities due in 2024. The filing reports approximately $1.644 billion outstanding under the new term loan facilities and $284.4 million drawn on revolving facilities at quarter-end.
- PVH adopted the new lease standard in Q1 2019, recognizing operating lease right-of-use assets and liabilities; prior-period balance sheets were not restated.
Guidance, management commentary, risks and contingencies
- For 2019, management expected revenue growth of approximately 3%, including an approximately 2% foreign-currency translation headwind. Tommy Hilfiger was expected to grow approximately 6%; Calvin Klein and Heritage Brands were each expected to be flat.
- Management expected full-year gross margin to increase versus 2018, but SG&A as a percentage of revenue to rise. Expected full-year net interest expense was approximately $120 million; the projected effective tax rate was 14.5% to 15.5%.
- Management estimated a roughly $200 million revenue and $25 million net income headwind from foreign-currency translation in 2019. It also cited exposure to tariffs, including increased and threatened U.S. tariffs on goods from China, as well as consumer demand, promotional activity, inventory, sourcing costs and currency movements.
- The Calvin Klein restructuring was expected to cost approximately $146 million in total through 2019; $111.0 million had been incurred by May 5, with approximately $35 million of additional costs expected for the rest of 2019. Full-year guidance also included costs associated with the Tommy Hilfiger U.S. store closures and acquisitions.
- PVH expected approximately $425 million in 2019 capital expenditures, approximately $200 million in share repurchases, approximately $150 million in long-term debt repayments, and acquisition cash outlays related to Australia and the pending Tommy Hilfiger retail acquisition in parts of Asia.
- The acquisition of the remaining approximately 78% of Gazal closed May 31, 2019, after quarter-end, for an expected net purchase price of approximately A$124 million (about $86 million at the stated exchange rate). The Tommy Hilfiger retail acquisition in Hong Kong and certain other Asian markets was pending; its estimated purchase price was approximately $75 million.
- PVH reported compliance with applicable debt covenants at May 5, 2019. Financing arrangements include financial covenants and events of default. Management stated that pending litigation was not expected to have a material adverse effect; it reported no material changes to the risk factors in its latest Form 10-K.
Important facts for investors to verify
- Confirm the correct reporting period: this is Q1 2019, not Q1 2018.
- Track whether revenue growth and the projected foreign-exchange headwinds align with full-year guidance, and monitor comparable store sales by brand and region.
- Assess the eventual earnings and cash costs of the Calvin Klein restructuring and Tommy Hilfiger U.S. store closures, distinguishing recurring performance from impairment and restructuring charges.
- Review debt, revolving-facility usage, interest-rate exposure and repayment requirements following the refinancing; monitor covenant compliance and liquidity after planned acquisitions, capital spending and repurchases.
- Verify the completed Australia acquisition and the status, final price and expected financial impact of the pending Tommy Hilfiger retail acquisition.
- Evaluate the effect of tariffs, currency movements, promotional activity and inventory trends on margins and cash flow.