PVH Corp. Form 10-Q Summary
Period clarification: The supplied filing is for the 13 and 39 weeks ended November 3, 2019, compared with November 4, 2018. This does not match the request metadata’s “2018 Q3.” Amounts are in U.S. dollars.
Business context and reporting period
PVH is a global apparel company whose principal brands include Tommy Hilfiger and Calvin Klein, alongside Heritage Brands. It operates wholesale, retail, digital commerce and licensing businesses. The filing covers fiscal 2019’s third quarter and first 39 weeks; the company notes that seasonal patterns mean interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | 13 weeks ended Nov. 3, 2019 | 13 weeks ended Nov. 4, 2018 | 39 weeks ended Nov. 3, 2019 | 39 weeks ended Nov. 4, 2018 |
|---|---|---|---|---|
| Total revenue | $2,587.7 million | $2,524.5 million | $7,308.2 million | $7,172.8 million |
| Gross profit / margin | $1,406.2 million / 54.3% | $1,364.8 million / 54.1% | $3,990.5 million / 54.6% | $3,952.8 million / 55.1% |
| Income before interest and taxes | $269.5 million | $282.3 million | $654.4 million | $758.0 million |
| Net income attributable to PVH | $209.2 million | $243.1 million | $484.7 million | $587.7 million |
| Diluted earnings per share | $2.82 | $3.15 | $6.46 | $7.56 |
Third-quarter revenue increased 3%, while attributable net income fell about 14%. For the 39-week period, revenue rose about 2% but attributable net income declined about 18%. Third-quarter SG&A was $1,141.6 million (44.1% of revenue), versus $1,091.3 million (43.2%); year-to-date SG&A was $3,457.6 million (47.3%), versus $3,215.8 million (44.8%).
Cash provided by operations for the 39 weeks was $431.8 million, compared with $305.1 million. Capital expenditures were $233.1 million, making operating cash flow less capital expenditures approximately $198.7 million. Cash and equivalents were $555.2 million at November 3, 2019. Current assets were $3,582.1 million and current liabilities $2,552.7 million.
At November 3, 2019, short-term borrowings were $387.5 million, current long-term debt $41.3 million and long-term debt $2,738.4 million. Total borrowings were therefore about $3.17 billion, or about $2.61 billion net of cash. Operating lease liabilities were separately reported at $1,864.8 million. The company reported covenant compliance; approximately 60% of long-term debt was fixed-rate after swaps.
Material changes versus prior comparable periods
- Tommy Hilfiger International led growth: third-quarter revenue rose 16%, including contributions from the Australia and Central/Southeast Asia acquisitions. International comparable sales increased 8% for Tommy Hilfiger, while North America comparable sales fell 5%.
- Calvin Klein International revenue increased 7% in the quarter, but comparable sales declined 2%; Calvin Klein North America revenue fell 5%, with comparable sales down 4%. Hong Kong disruption, U.S.-China trade tensions, the G-III license and the Calvin Klein Collection closure affected results.
- Heritage Brands revenue fell 13% in the quarter, primarily reflecting weakness in North American wholesale and a 2% comparable-store-sales decline.
- Year-to-date gross margin fell 50 basis points, reflecting Tommy Hilfiger North America promotions, Calvin Klein restructuring markdowns and acquisition-related inventory adjustments. Third-quarter margin rose 20 basis points.
- PVH acquired the remaining interest in its Australia business and acquired the Tommy Hilfiger retail business in Central and Southeast Asia. The Australia transaction generated a $113.1 million noncash gain on remeasurement of previously held investments.
- PVH adopted lease accounting in 2019, recording substantial right-of-use assets and lease liabilities; prior periods were not restated.
Outlook, commentary and risks
- Management expected 2019 revenue to increase about 1%, including an approximately 3% unfavorable foreign-currency translation impact. Tommy Hilfiger revenue was expected to rise about 6%; Calvin Klein to decline about 2%; and Heritage Brands to decline about 3%.
- Management expected full-year gross margin to decline slightly, with fourth-quarter gross margin higher year over year. It expected 2019 capital expenditures of about $375 million, long-term debt repayments of about $50 million and share repurchases of about $300 million.
- Management projected a full-year effective tax rate of 11.5%–12.0%, affected by discrete tax benefits and an expected favorable international audit settlement. It cautioned that pension actuarial results could produce a significant fourth-quarter loss.
- Significant unusual items included $102.9 million of Calvin Klein restructuring costs year to date, $59.8 million of socks-and-hosiery transaction costs, $54.9 million of Tommy Hilfiger U.S. store-closure costs, and $89.3 million of asset impairment charges. The Australia/TH CSAP acquisitions produced an aggregate net pretax gain of about $95 million year to date, including the noncash remeasurement gain.
- Key risks include foreign exchange exposure, tariffs on goods imported from China, weaker North American store traffic and consumer spending, Hong Kong business disruptions, leverage and debt service, and potential impairment of the perpetual license right, whose estimated fair value exceeded carrying value by only 3% at the annual test date. The company said litigation was not expected to have a material adverse effect and reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for 2019 Q3, not 2018 Q3.
- Assess underlying earnings excluding acquisition gains, restructuring, impairment, store closures and socks-and-hosiery costs.
- Track comparable sales and wholesale trends, particularly in North America and Heritage Brands, and the effect of Hong Kong and trade-related disruption.
- Review debt, revolving-credit usage, lease obligations, planned repayments and share repurchases against cash generation.
- Monitor currency and tariff impacts, the projected tax rate, fourth-quarter pension assumptions and the perpetual license right’s limited impairment headroom.