(Filed Under Financial and General Interest News). PVH sales and earnings were down in the third quarter, primarily related to foreign currency exchange rate issues according to the company.
PVH posted earnings of $221.9 million on revenue of $2.165 billion for the quarter ended November 1, 2015 compared to a profit of $225.7 million on revenue of $2.233 billion in the same period last year. For the first nine months of the year, profits are up, $438.2 million on revenue of $5.908 billion, compared to a profit of $387.4 million on total revenue of $6.172 billion in the same period last year.
In discussing the third quarter, the company explained that “Revenue increased 3% on a constant currency basis” overall, adding that “revenue increased 7% in the Calvin Klein business on a constant currency basis (was flat on a GAAP basis); increased 4% in the Tommy Hilfiger business on a constant currency basis (decreased 5% on a GAAP basis); and decreased 5% in the Heritage Brands business on a GAAP basis.”
Chairman and CEO Emanuel Chirico, pointed to a “difficult and volatile market environment, including the slowdown in traffic experienced in the U.S. during the quarter.” He cautioned that “The U.S. market during the second half of the quarter and currently in the fourth quarter continues to experience increased softness in traffic trends, in large part driven by the decline in international tourist traffic and spending trends coupled with unseasonably warm weather.”
Looking ahead, Chirico added, “we believe the current holiday season will continue to be very competitive and highly promotional and the volatility we are experiencing in the global environment will remain a headwind for the remainder of the year and into 2016.”
In announcing its quarterly results, the company provided details for its major segments. “Revenue in the Calvin Klein business for the quarter increased 7% on a constant currency basis (was flat on a GAAP basis) from $816 million in the prior year’s third quarter. Calvin Klein North America revenue increased 7% on a constant currency basis (increased 4% on a GAAP basis) compared to the third quarter of 2014. The North America wholesale business experienced healthy growth on a constant currency basis. Revenue growth on a constant currency basis in the North America retail business was due principally to square footage expansion in company-operated stores, including the conversion of IZOD stores to Calvin Klein Accessory and Calvin Klein Underwear stores. North America retail comparable store sales decreased 3% as compared to the prior year’s third quarter, primarily as a result of both the continued decline in traffic and consumer spending trends in the company’s U.S. stores located in international tourist locations and unseasonably warm weather. Calvin Klein International revenue increased 7% on a constant currency basis (decreased 6% on a GAAP basis) from the prior year period. The increase on a constant currency basis was driven by strong momentum in the European and Chinese businesses. Calvin Klein International retail comparable store sales increased 2% as a result of strong performance in Europe and China, partially offset by softness in Korea and Hong Kong.”
For its Calvin Klein business, the company reported “Earnings before interest and taxes on a GAAP basis for the quarter was $142 million compared to $127 million in the prior year’s third quarter. The increase was principally driven by a reduction in Warnaco integration and restructuring costs compared to the prior year’s third quarter, combined with the earnings increase on a non-GAAP basis described above.”
Turning to its other major brand, the company reported “revenue in the Tommy Hilfiger business for the quarter increased 4% on a constant currency basis (decreased 5% on a GAAP basis) from $930 million in the prior year’s third quarter. Tommy Hilfiger North America revenue increased 2% on a constant currency basis (was flat on a GAAP basis) compared to the third quarter of 2014, as growth in the wholesale business was mostly offset by softness in the retail business. North America retail comparable store sales declined 7% compared to the prior year’s third quarter due to further deterioration of traffic and consumer spending trends in the company’s U.S. stores that are highly penetrated in international tourist locations and unseasonably warm weather. Tommy Hilfiger International revenue increased 6% on a constant currency basis (decreased 8% on a GAAP basis) from the prior year period driven by strong performance in the European business, including a 10% increase in retail comparable store sales attributable to growth across all major markets.”
“Earnings before interest and taxes for the quarter was $126 million on a GAAP basis, inclusive of a $20 million negative impact due to foreign currency exchange rates, compared to $155 million in the prior year’s third quarter. Earnings on a constant currency basis decreased 6% driven principally by an earnings decline in North America due to increasingly weak international tourist traffic and spending in the company’s U.S. stores and unseasonably warm weather, which both drove more promotional selling as compared to the prior year’s third quarter, resulting in gross margins that were sharply lower than planned. This decline was partially offset by an earnings increase in Tommy Hilfiger International on a constant currency basis driven by the constant currency revenue increase noted above.”
In the conference call to discuss the quarterly results, Chirico explained, “We had a good Thanksgiving, Black Friday weekend, but overall, November was a soft month, driven by highly promotional - highly promotional macro environment as a result of elevated inventory levels throughout the industry. For the fourth quarter, we expect these trends to continue and are anticipating a highly promotional holiday selling season.”
Highlighting positive sector, Chirico stated PVH is “seeing strength in our Warner’s intimate business in the mid-tier channel, especially at Kohl’s, and we expect that trend to continue into the fourth quarter with strong selling through Black Friday holiday weekend.”
Asked by an analyst during the conference call if now was a good time to pull back on promoting, Chirico replied, “I think that’s the last thing we want to do. If you really look at the underlying businesses, we’ve got such strength going with both Calvin and Tommy, to pull back now on marketing, to pull back now on the investments in e-commerce and in the growth areas we see, I think would be like shooting ourselves in the foot.”
Asked about the retail environment in the short term, Chirico told the conference call analysts, “You know, I’m not optimistic. I’m not pessimistic,” adding that while Black Friday was good for PVH, “when I look out industry wide and I’m focused now just in the United States, when I look out and I see inventories and when I walk the floors at specialty retailers and department stores, I see more inventory than I’ve seen in a long time. So there’s a tremendous amount of promotional cadence going on. So even if sales were to pick up, which would be great, I think margin’s going to continue to be pressured in the US. So I would like to be more optimistic, David. But I just think that’s the reality of this moment in time of where we are. As we like to say here, the only good news is we get the comp business next year. So hopefully that creates an opportunity for next year when we get to some seasonable weather.”
Mike Shaffer, PVH EVP, COO and CFO said that a particular challenge “to face as we go into spring is that the off-price channel has got just about anything they want right now. There’s more inventory in that channel than ever before. They are being very aggressive in the pricing point of view. So we are being very aggressive of about using our own retail stores to clear the goods in the most efficient way possible and try and really capture that business, in especially warm weather, store locations as we go, as we start the turns into January.”
The complete conference call transcript can be found here: http://seekingalpha.com/article/3731646-pvhs-pvh-ceo-emanuel-chirico-on-q3-2015-results-earnings-call-transcript?page=1
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