By Brian Nelson, CFA
On April 1, PVH Corp. (PVH) reported better than expected fourth quarter results, but the company’s cautious outlook sent the stock tumbling. Fourth quarter revenue fell 1% on a constant currency basis, better than the company’s guidance calling for a decline of 3%-4%. On a non-GAAP basis, PVH earned $3.72 per share, which compared to guidance calling for ~$3.45 per share. The company noted that the macro environment in Europe remains challenging, which negatively impacted its wholesale business.
The executive team of the maker of Tommy Hilfiger and Calvin Klein brands had a lot to say about the quarterly report:
We delivered a strong fourth quarter and fiscal 2023, generating high single-digit direct-to-consumer growth, with growth in both Calvin Klein and Tommy Hilfiger and all regions. We significantly expanded our gross margins, drove strong pricing power, and are beginning to realize the benefits from the early buildout of our demand-driven supply chain, which allowed us to decrease inventory 21% to last year with much better stock freshness to start the new spring season.
Looking ahead to 2024, we will continue to build momentum with our PVH+ Plan, driving brand desirability for both Calvin and Tommy in product, consumer engagement and marketplace execution, powered by our demand-driven underlying operating engine. This will directly translate into growth in Asia and North America, while in Europe where the macro has become more challenged, our focus is on quality of sales to further strengthen our market-leading position. We see big, value-creating upside through the compounded effect of our consistency in PVH+ Plan execution and strong brand-building focus as we drive long-term, profitable, brand-accretive growth.
Our disciplined execution of the PVH+ Plan drove strong gross margin expansion and EPS growth for 2023. In a tougher macroeconomic backdrop in 2024, we are leaning into the next level of PVH+ Plan execution across the Company to create value by increasing quality of sales, driving gross margin improvements and cost efficiencies to deliver significant cash flow and attractive returns for our shareholders. Reflecting confidence in our long-term growth potential, the Board authorized a $2.0 billion increase to the Company’s stock repurchase program.
Looking ahead to the full year, the company noted it expects revenue to decline 6%-7% on a constant currency basis compared to last year, which is inclusive of a 2 percentage-point headwind from the sale of its Heritage Brands women’s intimates business. For 2024, its operating margin is targeted to be roughly flat compared to the 10.1% mark in 2023, while earnings per share is expected to be in the range of $10.75-$11 per share, which compares to $10.68 on a non-GAAP basis and the consensus estimate of $12.04 at the time.
The Street didn’t like its first quarter guidance that calls for revenue to decline 11% (10% on a constant currency basis) compared to the first quarter of last year, inclusive of the reduction from the sale of its Heritage Brands women’s intimates business. Earnings per share for the first quarter is targeted to only be marginally higher and come in at $2.15 versus $2.14 in the same period of 2023, well below what the Street was looking for.
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Tickerized for PVH, VFC, RL, TPR, ANF
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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