PVH Corp. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 1, 2022, compared with the 13 weeks ended May 2, 2021. The request metadata says “2021 Q1,” but the filing is for first-quarter 2022.
Business context and results
PVH is a global apparel company led by Tommy Hilfiger and Calvin Klein, with Heritage Brands businesses also reported. It sells through wholesale, company-operated stores and digital commerce, and earns licensing revenue. The company introduced its multi-year PVH+ Plan in April 2022, focused on brand, digital and direct-to-consumer growth.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $2,122.7 million | $2,079.3 million | Up 2% |
| Gross profit / margin | $1,238.7 million / 58.4% | $1,229.1 million / 59.1% | Margin down 70 bps |
| SG&A / percent of revenue | $1,039.4 million / 49.0% | $1,039.4 million / 50.0% | Expense flat; ratio down 100 bps |
| Income before interest and taxes | $210.3 million | $197.4 million | Up 7% |
| Net income attributable to PVH | $133.1 million | $99.9 million | Up 33% |
| Diluted EPS | $1.94 | $1.38 | Up 41% |
| Net interest expense | $21.8 million | $29.4 million | Down, mainly following 2021 debt repayments |
| Cash used by operating activities | $303.4 million | $189.1 million | Greater use of cash |
Revenue growth was offset by currency translation, the Heritage Brands transaction and retail exit, and the war in Ukraine. Tommy Hilfiger North America revenue rose 15%, Tommy Hilfiger International fell 2%, Calvin Klein North America rose 26%, and Calvin Klein International rose 7%; Heritage Brands revenue declined as brands were sold and Heritage Brands Retail ceased operations. Direct-to-consumer revenue rose 4%, while company-operated digital sales fell 14% against unusually strong prior-year growth. Wholesale revenue was flat.
Gross margin pressure reflected higher product, freight and logistics costs, partly offset by fuller-price selling, price increases and the mix effect of exiting lower-margin Heritage Brands. Lower SG&A as a percentage of revenue principally reflected the absence of prior-year restructuring and retail-exit costs.
Financial position and liquidity
- At May 1, 2022, cash and cash equivalents were $748.7 million, down from $1,242.5 million at fiscal year-end January 30, 2022. Cash used in operating activities and $108.0 million of treasury-share purchases contributed to the quarterly decrease.
- Inventories were $1,389.7 million, up from $1,348.5 million at fiscal year-end, as PVH rebuilt inventory from lean 2021 levels; management said inventory, including goods in transit, remained elevated year over year.
- Long-term debt, including its current portion, was $2,252.7 million; short-term borrowings were $15.5 million. Approximately 80% of long-term debt had fixed rates. PVH reported about $1.2 billion of borrowing capacity and compliance with applicable covenants.
- PVH expects approximately $33 million of mandatory long-term debt repayments and approximately $400 million of share repurchases in 2022. It repurchased 1.2 million shares for about $100 million in the quarter. The board increased the aggregate repurchase authorization to $3.0 billion and extended the program through June 3, 2026.
- Capital expenditures were $52.4 million in the quarter; management expected approximately $400 million for full-year 2022.
Outlook, commentary and risks
- Management expected 2022 revenue growth of approximately 1%–2% versus 2021, including an estimated 5% negative foreign-currency translation impact, a 2% reduction from Heritage Brands changes, and a 2% reduction from the Ukraine war. It cautioned that the outlook could change materially.
- PVH estimated the Ukraine war reduced first-quarter revenue by about $20 million and net income by about $7 million, and projected a full-year impact of about $165 million in revenue and $45 million in net income. Russia, Belarus and Ukraine generated about 2% of 2021 revenue; their subsidiaries’ assets were less than 1% of total assets.
- Management expected foreign-currency translation to reduce 2022 revenue by about $470 million and net income by about $60 million, with an additional approximately $15 million net-income headwind from transactional currency effects.
- Full-year gross margin and SG&A as a percentage of revenue were expected to be relatively flat versus 2021. Price increases began in some regions and categories in Q1, with broader increases planned for the second half to help offset inflation. Higher labor, raw-material, freight and logistics costs were expected to persist.
- Management expected a 2022 effective tax rate of 28.5%–29.5% and net interest expense of about $90 million. Digital-channel sales were expected to rise about 6% versus 2021, including an estimated 9% foreign-currency headwind; digital penetration was expected to remain around 25% of revenue.
- Key uncertainties include the Ukraine war and its broader effects, inflation, COVID-19 restrictions—particularly China lockdowns—and supply-chain, shipping and production disruptions. PVH cited potential delivery delays, excess inventory, receivable-collection difficulties and asset impairments. Beginning in Q2 2022, it planned to account for Turkey as highly inflationary; its Turkish operations were not material.
- PVH agreed to sell its approximately 8% Karl Lagerfeld interest for about $20 million and completed the sale May 31, 2022; it expected to record an estimated $15 million pre-tax gain in Q2. No significant goodwill or intangible-asset impairment indicators were identified at May 1, 2022.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material changes to the risk factors in its prior annual report; pending litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether revenue and earnings track the 2022 outlook after currency, Ukraine, inflation and supply-chain effects.
- Whether elevated inventories convert to sales without increased discounting, markdowns or working-capital strain.
- Cash generation and liquidity, given quarterly operating cash outflow, planned capital spending and share repurchases.
- Debt repayment progress, variable-rate exposure and continued compliance with financing covenants.
- Whether planned price increases offset higher costs without materially weakening consumer demand or gross margin.
- The Karl Lagerfeld sale proceeds and gain recorded in Q2, and the realized effects of PVH+ Plan initiatives.