PVH Corp., which owns the rights to Speedo in North America, raised its full-year adjusted profit forecast after its third-quarter revenue and earnings that topped Wall Street expectations

otal revenue rose to $2.59 billion from $2.52 billion, above average analysts’ estimate of $2.54 billion, according to IBES data from Refinitiv.

The company now expects to earn between $9.43 and $9.45 per share for full year 2019, compared with its prior range of $9.30 to $9.40.

Net income attributable to the company fell to $209.2 million, or $2.82 per share, in the quarter ended November 3, from $243.1 million, or $3.15 per share, a year earlier.

Highlights of the quarter include:

Third quarter EPS exceeded guidance and was:

  • GAAP basis: $2.82 compared to guidance of $2.70 to $2.75
  • Non-GAAP basis: $3.10 compared to guidance of $2.95 to $3.00
  • EPS included a negative impact of $0.09 per share related to foreign currency translation, in line with guidance

Full year 2019 EPS outlook:

  • GAAP basis: Raised to $8.04 to $8.06 from $7.95 to $8.05 previously
  • Non-GAAP basis: Raised to $9.43 to $9.45 from $9.30 to $9.40 previously
  • EPS outlook includes a negative impact of $0.35 per share related to foreign currency translation, in line with previous guidance

CEO Comments:
Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “We are pleased with our third quarter results, which exceeded our expectations despite the difficult market environment. During the quarter, we experienced continued outperformance by our European businesses while experiencing volatility in our businesses in North America and across China, including the impact of the ongoing protests in Hong Kong.”

Chirico continued, “Looking ahead to the remainder of 2019, we are raising our earnings guidance for the year, while continuing to take a prudent approach to planning our business for the fourth quarter. We believe the current holiday season will be very competitive and highly promotional, and expect that the macroeconomic and geopolitical volatility we are experiencing globally will remain a headwind.”

Chirico concluded, “We have great confidence in our ability to navigate this evolving consumer landscape and uncertain market environment with the underlying power of CALVIN KLEIN and TOMMY HILFIGER and our global diversified business model. We believe that we are well positioned to capture the heart of the consumer by executing our strategic priorities, while delivering sustainable long term returns for our stockholders.”

Third Quarter Business Review:

The company’s third quarter of 2019 results include the two acquisitions that closed in the second quarter of 2019. The first was the company’s acquisition of the approximately 78 percent interest in Gazal Corporation Limited (“Gazal”) that it did not already own (the “Australia acquisition”). The company and Gazal jointly owned and managed a joint venture, PVH Brands Australia Pty. Limited (“PVH Australia”), which licensed and operated businesses under the “TOMMY HILFIGER,” “CALVIN KLEIN” and “Van Heusen” brands, along with other licensed and owned brands. PVH Australia came under the company’s full control as a result of the Australia acquisition. The second was the company’s acquisition of the Tommy Hilfiger retail business in Central and Southeast Asia from the company’s previous licensee in that market (the “TH CSAP acquisition”).

Tommy Hilfiger

Revenue in the Tommy Hilfiger business for the quarter increased 10 percent to $1.2 billion (increased 12 percent on a constant currency basis) compared to the prior year period. Tommy Hilfiger International revenue increased 16 percent to $821 million (increased 20 percent on a constant currency basis) compared to the prior year period, primarily driven by continued outperformance in Europe and the addition of revenue resulting from the Australia and TH CSAP acquisitions. International comparable store sales increased 8 percent. Tommy Hilfiger North America revenue of $423 million was flat compared to the prior year period, as growth in the North America wholesale business was offset by a 5 percent decline in North America comparable store sales due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.

Earnings before interest and taxes on a GAAP basis for the quarter of $177 million, inclusive of a $6 million negative impact due to foreign currency translation, was flat compared to the prior year period. Included in earnings before interest and taxes for the current quarter were costs of $5 million related to the portion of the Australia acquisition costs attributable to the Tommy Hilfiger business and to the TH CSAP acquisition costs, primarily consisting of noncash valuation adjustments. Included in earnings before interest and taxes for the prior year period were costs of $6 million related to the April 2016 acquisition of the 55 percent interest in the company’s former Tommy Hilfiger joint venture in China that it did not already own (the “TH China acquisition”), consisting of noncash amortization of short-lived assets.

Earnings before interest and taxes on a non-GAAP basis for the quarter decreased to $182 million, inclusive of a $6 million negative impact due to foreign currency translation, from $183 million in the prior year period. The slight decline in earnings was principally due to gross margin pressure experienced in the North America retail business, which more than offset the strong revenue outperformance in Europe and the favorable impact of the Australia acquisition.

Calvin Klein

Revenue in the Calvin Klein business for the quarter increased 1 percent to $969 million (increased 3 percent on a constant currency basis) compared to the prior year period. Calvin Klein International revenue increased 7 percent to $514 million (increased 10 percent on a constant currency basis) compared to the prior year period, driven by continued solid growth in Europe and the addition of revenue resulting from the Australia acquisition. These increases were partially offset by softness in Asia due, in part, to the business disruptions caused by the ongoing protests in Hong Kong and the trade tensions between the U.S. and China. International comparable store sales decreased 2 percent. Calvin Klein North America revenue decreased 5 percent to $455 million compared to the prior year period, principally due to a decrease in the wholesale business, including the effect of licensing the company’s directly operated women’s jeanswear wholesale business in the U.S. and Canada to G-III Apparel Group, Ltd. (the “G-III license”), and a 4 percent decline in North America comparable store sales due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.

Earnings before interest and taxes on a GAAP basis for the quarter increased to $123 million, inclusive of a $2 million negative impact due to foreign currency translation, from $121 million in the prior year period. Included in earnings before interest and taxes for the current quarter were costs of (i) $3 million in connection with the restructuring associated with the strategic changes for the Calvin Klein business announced in January 2019 (the “Calvin Klein restructuring”), consisting of $2 million of contract termination and other costs and $1 million of severance, and (ii) $2 million related to the portion of the Australia acquisition costs attributable to the Calvin Klein business, primarily consisting of noncash valuation adjustments.

Earnings before interest and taxes on a non-GAAP basis for the quarter increased to $129 million, inclusive of a $2 million negative impact due to foreign currency translation, from $121 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period). The earnings increase was principally due to gross margin improvements realized in North America, partially offset by softness in Asia.

Heritage Brands

Revenue in the Heritage Brands business for the quarter decreased 13 percent to $375 million compared to the prior year period, primarily due to weakness in the North America wholesale business and a 2 percent decline in comparable store sales.

Earnings before interest and taxes for the quarter decreased to $14 million from $24 million in the prior year period, principally due to the revenue decline noted above. Heritage Brands include Van Heusen, IZOD, ARROW, Speedo, Warner’s, Olga and Geoffrey Beene.

Third Quarter Consolidated Results:

Third quarter revenue increased 3 percent to $2.6 billion (increased 4 percent on a constant currency basis) compared to the prior year period.

Earnings per share on a GAAP basis was $2.82 for the third quarter of 2019 compared to $3.15 in the prior year period.

Earnings per share on a non-GAAP basis was $3.10 for the third quarter of 2019 compared to $3.21 in the prior year period. Earnings per share on both a GAAP and non-GAAP basis for the third quarter of 2019 included a $0.09 negative impact related to foreign currency translation.

Earnings before interest and taxes on a GAAP basis for the quarter decreased to $270 million, inclusive of an $8 million negative impact due to foreign currency translation, from $282 million in the prior year period. Included in earnings before interest and taxes for the current quarter were $12 million of costs consisting of (i) $9 million related to the Australia and TH CSAP acquisitions and (ii) $3 million related to the Calvin Klein restructuring. Included in earnings before interest and taxes for the prior year period were costs of $6 million related to the TH China acquisition.

Earnings before interest and taxes on a non-GAAP basis for the quarter decreased to $282 million, inclusive of an $8 million negative impact due to foreign currency translation, compared to $289 million in the prior year period. The decrease in earnings was principally driven by the earnings decline in the Heritage Brands business and a $4 million increase in corporate expenses, which more than offset the earnings growth in the Calvin Klein business.

Net interest expense on a GAAP basis decreased to $28 million from $29 million in the prior year period. Included in net interest expense for the current quarter was a $3 million expense resulting from the remeasurement of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense on a non-GAAP basis decreased to $25 million from $29 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period).

The effective tax rate on a GAAP basis was 13.6 percent as compared to 4.1 percent in the prior year period. The effective tax rate on a non-GAAP basis was 10.6 percent as compared to 4.6 percent in the prior year period. The increase in the current year period effective tax rate was due, in part, to a lower overall benefit from discrete tax items as compared to the prior year period.

Nine Months Consolidated Results:

Revenue for the first nine months of 2019 increased 2 percent to $7.3 billion (increased 5 percent on a constant currency basis) compared to the prior year period. The revenue increase was due to:

  • A 7 percent increase (11 percent increase on a constant currency basis) in the Tommy Hilfiger business compared to the prior year period, driven principally by outperformance in Europe and the addition of revenue resulting from the Australia acquisition. International comparable store sales increased 9 percent. North America comparable store sales decreased 6 percent due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.
  • A 2 percent decrease (1 percent increase on a constant currency basis) in the Calvin Klein business compared to the prior year period, as continued solid growth in Europe and the addition of revenue resulting from the Australia acquisition were more than offset by the negative impacts of (i) foreign currency translation, (ii) softness experienced in Asia due, in part, to the business disruptions caused by the ongoing protests in Hong Kong and the trade tensions between the U.S. and China, (iii) the reduction of revenue resulting from the closure of the CALVIN KLEIN 205 W39 NYC brand (formerly Calvin Klein Collection) (the “CK Collection closure”), and (iv) the effect of the G-III license. International comparable store sales decreased 2 percent. North America comparable store sales decreased 4 percent due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.
  • A 4 percent decrease in the Heritage Brands business compared to the prior year period, primarily due to weakness in the North America wholesale business and a 3 percent decline in comparable store sales.

Earnings per share on a GAAP basis was $6.46 for the first nine months of 2019 compared to $7.56 in the prior year period.

Earnings per share on a non-GAAP basis was $7.64 for the first nine months of 2019 compared to $7.75 in the prior year period. Earnings per share on both a GAAP and non-GAAP basis for the first nine months of 2019 included a $0.30 negative impact related to foreign currency translation.

Earnings before interest and taxes on a GAAP basis for the first nine months of 2019 decreased to $654 million, inclusive of a $27 million negative impact due to foreign currency translation, from $758 million in the prior year period.

Earnings before interest and taxes on a non-GAAP basis for the first nine months of 2019 increased to $781 million, inclusive of a $27 million negative impact due to foreign currency translation, from $778 million in the prior year period. The improvement in earnings was driven by earnings growth in the Tommy Hilfiger and Calvin Klein businesses, partially offset by an earnings decline in the Heritage Brands business and a $9 million increase in corporate expenses.

Net interest expense on a GAAP basis for the first nine months of 2019 decreased to $85 million from $87 million in the prior year period. Included in net interest expense for the current period was a $3 million expense resulting from the remeasurement of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense on a non-GAAP basis for the first nine months of 2019 decreased to $82 million from $87 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period).

The effective tax rate on a GAAP basis for the first nine months of 2019 was 15.1 percent as compared to 12.7 percent in the prior year period. The effective tax rate on a non-GAAP basis for the first nine months of 2019 was 18.1 percent as compared to 13.0 percent in the prior year period.

Inventory levels increased 5 percent as compared to the prior year period due to inventory acquired as part of the Australia and TH CSAP acquisitions.

Stock Repurchase Program:

During the first nine months of 2019, the company repurchased approximately 2.4 million shares of its common stock for $223 million (11.4 million shares for $1.2 billion since inception) under the $2.0 billion stock repurchase program authorized by the Board of Directors through June 3, 2023. Stock repurchases under the program may be made from time to time over the period through open market purchases, accelerated share repurchase programs, privately negotiated transactions or other methods, as the company deems appropriate. Purchases are made based on a variety of factors, such as price, corporate requirements and overall market conditions, applicable legal requirements and limitations, restrictions under the company’s debt arrangements, trading restrictions under the company’s insider trading policy and other relevant factors. The program may be modified by the Board, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, at any time, without prior notice.

2019 Outlook:

The company’s 2019 guidance incorporates the impact on certain of the company’s products of tariffs imposed and expected to be imposed by the U.S. on goods imported from China into the U.S., including (i) $250 billion of total goods imported from China into the U.S. (Tranches 1, 2 and 3) currently at 25 percent and (ii) $300 billion of total goods imported from China into the U.S. (Tranche 4) at 15 percent imposed on certain goods in September 2019 and expected to be imposed on certain other goods in December 2019. These tariffs are expected to have a negative impact of approximately $0.20 per share in 2019.

Please see the section entitled “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

Full Year Guidance

The company currently projects that 2019 earnings per share on a GAAP basis will be in a range of $8.04 to $8.06 compared to $9.65 in 2018. The company currently projects that 2019 earnings per share on a non-GAAP basis will be in a range of $9.43 to $9.45 compared to $9.60 in 2018. Both the GAAP and non-GAAP projections include the estimated negative impact of approximately $0.35 per share related to foreign currency translation.

Revenue in 2019 is projected to increase approximately 1 percent (increase approximately 4 percent on a constant currency basis) as compared to 2018. Revenue for the Tommy Hilfiger business is projected to increase approximately 6 percent (increase approximately 9 percent on a constant currency basis). Revenue for the Calvin Klein business is projected to decrease approximately 2 percent (to be flat on a constant currency basis). Revenue for the Heritage Brands business is projected to decrease approximately 3 percent.

Net interest expense in 2019 on a GAAP basis is projected to decrease to approximately $114 million compared to $116 million in 2018. The company’s estimate of 2019 net interest expense includes a $7 million expense expected to result from the remeasurements of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense in 2019 on a non-GAAP basis is projected to decrease to approximately $107 million compared to $116 million on a GAAP basis in 2018 (there were no non-GAAP exclusions in the prior year). The company estimates that the 2019 effective tax rate will be in a range of 11.5 percent to 12.0 percent on a GAAP basis and in a range of 14.0 percent to 14.5 percent on a non-GAAP basis.

The company’s estimate of 2019 earnings per share on a non-GAAP basis excludes approximately $142 million of pre-tax net costs, consisting of (i) $105 million of pre-tax costs expected to be incurred in connection with the Calvin Klein restructuring, consisting of a noncash lease asset impairment resulting from the closure of the company’s flagship store on Madison Avenue in New York, New York, severance, contract termination and other costs, other noncash asset impairments, and inventory markdowns, (ii) $60 million of pre-tax costs incurred in connection with the agreements to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses (the “Socks and Hosiery transaction”) in conjunction with the company’s plan to consolidate the socks and hosiery business for all company brands in North America in a newly formed joint venture, which is expected to begin operations in December 2019, and to bring in-house the international Calvin Klein socks and hosiery wholesale businesses, (iii) $55 million of pre-tax costs incurred in connection with the closure of the company’s TOMMY HILFIGER flagship and anchor stores in the United States (the “TH U.S. store closures”), primarily consisting of noncash lease asset impairments, (iv) $6 million of pre-tax costs incurred in connection with the refinancing of the company’s senior credit facilities, (v) a pre-tax non-cash gain of $113 million recorded to write up the company’s equity investments in Gazal and PVH Australia to fair value in connection with the Australia acquisition, (vi) $22 million of pre-tax costs expected to be incurred in connection with the Australia and TH CSAP acquisitions, primarily consisting of noncash valuation adjustments, and (vii) the $7 million pre-tax expense expected to be recorded in net interest expense resulting from the remeasurements of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition, and the resulting estimated tax effects of these pre-tax items.

Fourth Quarter Guidance

The company currently projects that fourth quarter 2019 earnings per share on a GAAP basis will be in a range of $1.56 to $1.58 compared to $2.09 in the prior year period. The company currently projects that fourth quarter 2019 earnings per share on a non-GAAP basis will be in a range of $1.77 to $1.79 compared to $1.84 in the prior year period. Both the GAAP and non-GAAP projections include an estimated negative impact of approximately $0.05 per share related to foreign currency translation.

Revenue in the fourth quarter of 2019 is projected to be flat (increase approximately 2 percent on a constant currency basis) compared to the prior year period. Revenue for the Tommy Hilfiger business in the fourth quarter is projected to increase approximately 4 percent (increase approximately 6 percent on a constant currency basis). Revenue for the Calvin Klein business in the fourth quarter is projected to decrease approximately 5 percent (decrease approximately 3 percent on a constant currency basis). Revenue for the Heritage Brands business in the fourth quarter is projected to increase 1 percent.

Net interest expense in the fourth quarter of 2019 on a GAAP basis is projected to be flat compared to $29 million in the prior year period. The company’s estimate of net interest expense includes a $4 million expense expected to result from the remeasurement of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis excludes this amount. Net interest expense in the fourth quarter of 2019 on a non-GAAP basis is projected to decrease to approximately $25 million compared to $29 million on a GAAP basis in the prior year period (there were no non-GAAP exclusions in the prior year period). The company estimates that the fourth quarter 2019 effective tax rate will be in a range of (4.0) percent to (8.0) percent on a GAAP basis and in a range of (5.5) percent to (9.5) percent on a non-GAAP basis. Included in the fourth quarter 2019 effective tax rate guidance is the expected favorable settlement of a multi-year audit from an international jurisdiction.

The company’s estimate of fourth quarter 2019 earnings per share on a non-GAAP basis excludes approximately $13 million of pre-tax costs, consisting of (i) $6 million of pre-tax costs expected to be incurred in connection with the Australia and TH CSAP acquisitions, primarily consisting of noncash valuation adjustments, (ii) the $4 million pre-tax expense expected to be recorded in net interest expense resulting from the remeasurement of the company’s mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition and (iii) $2 million of pre-tax costs expected to be incurred in connection with the Calvin Klein restructuring, and the resulting estimated tax effects of these pre-tax costs.