PVH Corp., the parent of Tommy Hilfiger and Calvin Klein, fourth-quarter earnings were down due to higher costs and increased promotion as sales on a currency-neutral basis climbed 8 percent. Earnings came in well ahead of company guidance.

The revenue increase of 8 percent on a constant-currency basis compared to guidance calling for a currency-neutral gain of 4 percent. 

Earnings of $2.38 compared with company guidance of $1.65.

Stefan Larsson, CEO, commented, “We delivered a strong fourth quarter performance with stronger than expected high-single digit constant currency revenue growth and earnings above guidance. Our disciplined execution of the PVH+ Plan, our multi-year, brand-focused, direct-to-consumer and digitally-led strategy enabled us to compete to win despite the challenging macro situation. Since we introduced our PVH+ Plan, we have made significant progress all around the world in driving brand desirability by getting closer to the consumer, creating great products and delivering very strong consumer engagement through impactful talent partnerships.”

Larsson added, “Looking ahead, we are entering 2023 with significant momentum, and we will continue to execute the PVH+ Plan with discipline towards our long-term vision to build Tommy Hilfiger and Calvin Klein into the most desirable lifestyle brands in the world and be one of the highest performing brand groups in our sector.”

Zac Coughlin, CFO, said, “We are well positioned to achieve double-digit EPS growth in 2023 and have a multi-year opportunity ahead of us to drive meaningful top and bottom-line growth. Our plan is built on two of the most powerful brands in the fashion industry, and we are doubling down on the PVH+ Plan growth drivers and focusing on what is within our control to drive sustainable and profitable growth, generate strong cash flows, and deliver attractive returns for our shareholders.”

Fourth Quarter Review

  • Revenue increased 2 percent compared to the prior year period (increased 8 percent on a constant-currency basis), inclusive of a 1 percent reduction resulting from the impact of the war in Ukraine, including closures of company stores in Russia, the cessation of wholesale shipments to Russia and Belarus, and a reduction in wholesale shipments to Ukraine.
  • The company’s underlying high-single-digit revenue growth compared to the prior year period was driven by growth in its Tommy Hilfiger and Calvin Klein brand businesses. Despite the challenging global macroeconomic environment, the increase included strong revenue growth in Europe and North America, particularly in its DTC business. The company continued to experience negative impacts from the pandemic in China.
  • DTC revenue increased 4 percent compared to the prior year period (increased 10 percent on a constant-currency basis);
  • Wholesale revenue was flat compared to the prior year period (increased 6 percent on a constant-currency basis);
  • Total digital revenue decreased 8 percent (decreased 2 percent on a constant-currency basis) compared to exceptionally strong revenue in the prior year period. Digital revenue includes the sales through the company’s digital commerce businesses and sales to the digital businesses of its traditional and pure-play wholesale customers reflected in the direct-to-consumer and wholesale revenues above. Digital penetration, as a percentage of total revenue, was approximately 20 percent;
  • Gross margin was 55.9 percent compared to 58.3 percent in the prior year period. The benefit from price increases and a favorable shift in regional and channel mix was more than offset by higher costs and increased promotional activity due to elevated inventory levels industry-wide; and
  • Inventory increased 34 percent compared to the prior year period due to a combination of abnormally low inventory levels in the prior year period, earlier receipts of inventory and higher product costs.

Fourth Quarter Consolidated Results

  • Revenue increased 2 percent to $2.489 billion compared to the prior year period (increased 8 percent on a constant-currency basis), including a 1 percent reduction resulting from the impact of the war in Ukraine.
  • Tommy Hilfiger revenue increased 3 percent compared to the prior year period (increased 10 percent on a constant-currency basis);
      • Tommy Hilfiger International revenue increased 3 percent (increased 11 percent on a constant-currency basis);
      • Tommy Hilfiger North America revenue increased 5 percent;
  • Calvin Klein revenue increased 3 percent compared to the prior year period (increased 8 percent on a constant-currency basis);
      • Calvin Klein International revenue increased 2 percent (increased 10 percent on a constant-currency basis);
      • Calvin Klein North America revenue increased 4 percent; and
  • Heritage Brands (Warners Olga True & Co.) revenue decreased 10 percent compared to the prior year period.
  • Earnings before interest and taxes (EBIT) on a GAAP basis was $297 million, inclusive of a $21 million negative impact due to foreign currency translation, compared to $223 million in the prior year period. Included in the fourth quarter and the prior year period were recognized actuarial gains on retirement plans of $78 million and $49 million, respectively. EBIT on a GAAP basis for the fourth quarter also includes other amounts described under the heading “Non-GAAP Exclusions” later in this release. EBIT on a non-GAAP basis for these periods excludes these amounts; and
  • EBIT on a non-GAAP basis was $215 million, inclusive of a $21 million negative impact due to foreign currency translation, compared to $175 million in the prior year period. The increase was driven by revenue growth on a constant-currency basis and lower expenses, partially offset by the lower gross margins discussed above. Expenses decreased compared to the prior year period as the company continues to take a disciplined approach to manage expenses, driving cost efficiencies while making targeted investments to drive its strategic initiatives.

Earnings per share

  • GAAP basis: $2.18 compared to $5.53 in the prior year period; and
  • Non-GAAP basis: $2.38 compared to $2.84 in the prior year period.

EPS on both a GAAP basis and a non-GAAP basis for the fourth quarter included the negative impacts of $0.23 per share related to foreign currency translation and $0.13 per share related to the war in Ukraine.

EPS on a GAAP basis for these periods also included the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release. EPS on a non-GAAP basis for these periods excludes these amounts.

  • Interest expense decreased to $22 million from $24 million in the prior year period; and
  • Effective tax rate was 49.7 percent on a GAAP basis compared to (96.0) percent in the prior year period. The effective tax rate for the fourth quarter of 2022 included the negative impact resulting from the $417 million pre-tax noncash goodwill impairment charge recorded in the third quarter of 2022, which is non-deductible for tax purposes and factored into the company’s annualized effective tax rate. The effective tax rate in the prior year period included one-time discrete tax benefits of $152 million, principally resulting from a tax accounting method change made in conjunction with the company’s 2020 U.S. federal income tax return. The effective tax rates on a non-GAAP basis for these periods exclude these impacts. The effective tax rate was 21.7 percent on a non-GAAP basis compared to (33.2) percent in the prior year period. Included in the effective tax rate on a non-GAAP basis for the prior year period was a discrete tax benefit related to the resolution of uncertain tax positions.

Full Year 2022 Consolidated Results

  • Revenue decreased 1 percent to $9.024 billion compared to 2021 (increased 5 percent on a constant-currency basis), inclusive of a 3 percent negative impact consisting of a 2 percent reduction resulting from the Heritage Brands transaction (as defined under the heading “Non-GAAP Exclusions”) and the exit from the Heritage Brands Retail business and a 1 percent reduction resulting from the war in Ukraine;
  • Tommy Hilfiger revenue decreased 1 percent compared to 2021 (increased 7 percent on a constant-currency basis);
      • Tommy Hilfiger International revenue decreased 4 percent (increased 6 percent on a constant-currency basis);
      • Tommy Hilfiger North America revenue increased 9 percent;
  • Calvin Klein revenue increased 3 percent compared to 2021 (increased 10 percent on a constant-currency basis);
      • Calvin Klein International revenue increased 1 percent (increased 10 percent on a constant-currency basis);
      • Calvin Klein North America revenue increased 8 percent; and
  • Heritage Brands revenue decreased 26 percent compared to 2021 and includes a 25 percent decrease resulting from the Heritage Brands transaction and the exit from the Heritage Brands Retail business.
  • EBIT on a GAAP basis was $471 million, inclusive of a $94 million negative impact due to foreign currency translation, compared to $1.077 billion in 2021. These results include the amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release. EBIT on a non-GAAP basis for these periods excludes these amounts;
  • EBIT on a non-GAAP basis was $857 million, inclusive of a $94 million negative impact due to foreign currency translation, compared to $983 million in 2021;
  • EPS
    • GAAP basis: $3.03 compared to $13.25 in 2021; and
    • Non-GAAP basis: $8.97 compared to $10.15 in 2021.

EPS on both a GAAP basis and non-GAAP basis for 2022 included the negative impacts of $1.09 per share related to foreign currency translation and $0.58 per share related to the war in Ukraine, apart from the one-time noncash asset impairments recorded in the second quarter in connection with the company’s decision to exit from its Russia business discussed under the heading “Non-GAAP Exclusions” later in this release.

EPS on a GAAP basis for these periods also included the other amounts for the applicable period described under the heading “Non-GAAP Exclusions” later in this release. EPS on a non-GAAP basis excludes the one-time noncash impairments recorded in the second quarter discussed above and these other amounts.

  • Interest expense decreased to $83 million from $104 million in 2021 primarily due to the impact of voluntary debt repayments made in 2021; and
  • Effective tax rate was 48.4 percent on a GAAP basis as compared to 2.1 percent in 2021. The effective tax rate was 23.3 percent on a non-GAAP basis compared to 17.1 percent in 2021.

Stock Repurchase Program
Delivering on its commitment under the PVH+ Plan to return excess cash to stockholders, the company repurchased 6.2 million shares of its common stock for approximately $400 million in 2022.

2023 Outlook
Full Year 2023 Guidance

  • Revenue is projected to increase 3 percent to 4 percent compared to 2022 (increase 2 percent to 3 percent on a constant-currency basis), reflecting a benefit of less than 1 percent from the 53rd week in 2023;
  • Operating margin is projected to be approximately 10 percent;
  • EPS is projected to be approximately $10.00 compared to $3.03 on a GAAP basis and $8.97 on a non-GAAP basis in 2022. The 2023 EPS projection includes the estimated positive impact of approximately $0.15 per share related to foreign currency translation. EPS on a GAAP basis for 2022 had included the amounts described under the heading “Non-GAAP Exclusions” later in this release. EPS on a non-GAAP basis excluded these amounts;
  • Interest expense is projected to increase to approximately $100 million compared to $83 million in 2022 primarily due to higher interest rates; and
  • Effective tax rate is projected to be approximately 24 percent.

First Quarter 2023 Guidance

  • Revenue is projected to be relatively flat compared to the first quarter of 2022 (an increase of approximately 3 percent on a constant-currency basis);
  • EPS is projected to be approximately $1.90 compared to $1.94 in the first quarter of 2022. The first quarter 2023 EPS projection includes the estimated negative impact of approximately $0.10 per share related to foreign currency translation;
  • Interest expense is projected to increase to approximately $23 million compared to $22 million in the first quarter of 2022; and
  • Effective tax rate is projected to be approximately 24 percent.

Photo courtesy Tommy Hilfiger