PVH Corp., the parent of Speedo, raised its full-year guidance after reporting better-than-expected second quarter results.

Overview of Second Quarter Results:

  • Earnings per share on a non-GAAP basis was $1.37, inclusive of a $0.31 negative impact primarily related to foreign currency exchange rates compared to the prior year. Wall Street's consensus estimate had been $1.29 a share and exceeded its own guidance range of $1.25–$1.30.
  • Earnings per share on a non-GAAP basis excluding the negative impact primarily related to foreign currency exchange rates was $1.68, or an increase of 11 percent compared to the prior year’s second quarter earnings per share on a non-GAAP basis of $1.51.
  • GAAP earnings per share was $1.22 compared to $1.52 for the prior year’s second quarter.
  • Revenue increased 2 percent on a constant currency basis (decreased 6 percent on a GAAP basis) compared to the prior year’s second quarter revenue of $1.98 billion. As compared to the prior year’s second quarter, revenues increased 5 percent in the Tommy Hilfiger business on a constant currency basis (decreased 7 percent on a GAAP basis); increased 3 percent in the Calvin Klein business on a constant currency basis (decreased 4 percent on a GAAP basis); and decreased 6 percent in the Heritage Brands business.

CEO Comments:

Commenting on these results, Emanuel Chirico, Chairman and Chief Executive Officer, noted, “We are very pleased with our second quarter results, which exceeded our top and bottom line guidance. Our second quarter performance highlighted continued strength in our Calvin Klein business, as consumers responded well to our recent product initiatives, particularly in underwear. Overall, our first half earnings per share, which increased 16 percent on a non-GAAP and constant currency basis, demonstrated our ability to deliver against our 2015 plan, while managing through the anticipated difficult global retail environment.”

Mr. Chirico continued, “As we look ahead to the second half of the year, we now expect to generate earnings per share growth on a non-GAAP and constant currency basis of 12 percent to 14 percent for 2015, up from our previous guidance of 11 percent to 12 percent. We continue to believe, however, that the strength of the U.S. dollar and the changing consumer spending patterns for international tourists in the U.S., along with the volatility in the global environment, will remain a headwind.”

Mr. Chirico concluded, “Lastly, we remain focused on the strategic growth opportunities ahead of us. We believe that the sound execution of our business strategies and investment in our world-class brands, together with our strong balance sheet and the efforts of our talented associates, will position us to deliver strong results in 2015.”

Second Quarter Business Review:

Calvin Klein

Revenue in the Calvin Klein business for the quarter increased 3 percent on a constant currency basis (decreased 4 percent on a GAAP basis) from $675 million in the prior year’s second quarter.

Calvin Klein North America revenue was flat on a constant currency basis (decreased 2 percent on a GAAP basis) compared to the prior year’s second quarter. North America retail comparable store sales increased 4 percent as compared to the prior year’s second quarter, despite continued decreased traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar. The North America wholesale business experienced a moderate revenue decline due principally to a shift of shipments into the first quarter from the second quarter in the current year, as well as from the prior year’s second quarter having the benefit of sales from the packaging re-launch of men’s basic styles of Calvin Klein Underwear. Calvin Klein International revenue increased 7 percent on a constant currency basis (decreased 6 percent on a GAAP basis) compared to the prior year’s second quarter, with a 3 percent increase in retail comparable store sales. The international revenue increase on a constant currency basis was driven by continued strength in Europe, as customers are responding well to the investments we have made around the brand and in upgraded product, combined with growth in China. Overall, the Calvin Klein Underwear business performed exceptionally well globally.

Earnings before interest and taxes on a non-GAAP basis in the Calvin Klein business decreased to $81 million, inclusive of a $9 million negative impact due to foreign currency exchange rates, from $86 million in the prior year’s second quarter. The earnings increase on a constant currency basis was due principally to the constant currency revenue increase mentioned above, combined with gross margin improvements globally, particularly in Europe. Negatively impacting the current quarter’s earnings was an increase of $5 million spent on advertising compared to the prior year’s second quarter.

Earnings before interest and taxes on a GAAP basis in the Calvin Klein business was $81 million compared to $70 million in the prior year’s second quarter. The increase was principally driven by a reduction in Warnaco integration and restructuring costs compared to the prior year’s second quarter.

Tommy Hilfiger

Revenue in the Tommy Hilfiger business for the quarter increased 5 percent on a constant currency basis (decreased 7 percent on a GAAP basis) from $870 million in the prior year’s second quarter. Tommy Hilfiger North America revenue increased 3 percent on a constant currency basis (increased 1 percent on a GAAP basis) compared to the second quarter of 2014 due to square footage expansion in Company-operated retail stores and modest growth in the wholesale business on a constant currency basis. North America retail comparable store sales were relatively flat to the prior year’s second quarter. As with Calvin Klein, there was a continued decline in traffic and spending trends in the Company’s U.S. stores located in international tourist locations. Tommy Hilfiger International revenue increased 6 percent on a constant currency basis (decreased 13 percent on a GAAP basis) from the prior year period. The increase on a constant currency basis was driven by solid performance in the European business, including a 9 percent increase in retail comparable store sales.

Earnings before interest and taxes in the Tommy Hilfiger business was $98 million on a GAAP basis, inclusive of an $18 million negative impact due to foreign currency exchange rates, compared to $116 million on a GAAP basis and $118 million on a non-GAAP basis in the prior year’s second quarter. Earnings on a constant currency basis declined slightly, as earnings growth in Europe was more than offset by an earnings decline in North America due to weak international tourist traffic and spending, which drove more promotional selling, resulting in lower gross margins.

Heritage Brands

Revenue in the Heritage Brands business for the quarter declined 6 percent from $431 million in the prior year’s second quarter. The decline was driven in part by the prior year’s second quarter having the benefit of the sales attributable to the launch of IZOD at Kohl’s and a shift in the timing of wholesale shipments into the first quarter from the second quarter in the current year. Partially offsetting this decline was an 8 percent increase in retail comparable store sales in the Van Heusen business.

Earnings before interest and taxes on a non-GAAP basis in the Heritage Brands business decreased to $26 million compared to $29 million in the prior year’s second quarter due principally to the wholesale revenue decline discussed above.

Earnings before interest and taxes on a GAAP basis in the Heritage Brands business was $15 million compared to $25 million in the prior year’s second quarter. The decrease was mainly attributable to the wholesale revenue decline discussed above, as well as $6 million of expenses incurred in connection with operating and exiting the Izod retail business and $3 million of expenses incurred related to exiting various product lines in the dress furnishings business, partially offset by a reduction in Warnaco integration and restructuring costs incurred compared to the prior year’s second quarter.

Second Quarter Consolidated Earnings:

Earnings before interest and taxes on a non-GAAP basis for the second quarter decreased 2 percent on a constant currency basis (decreased 15 percent including foreign currency exchange rate impacts) from $206 million in the prior year’s second quarter. Earnings of the Calvin Klein business grew 5 percent on a constant currency basis (5 percent decrease including foreign currency exchange rate impacts) despite an increase of $5 million spent on advertising, but was more than offset by the decreases in the earnings of the Tommy Hilfiger and Heritage Brands businesses mentioned previously and a $3 million increase in corporate expenses attributable to associate-related benefits, primarily pension expense.

Earnings before interest and taxes on a GAAP basis was $154 million compared to $159 million in the prior year’s second quarter. The decrease was primarily due to a negative impact of foreign currency exchange rates and the items mentioned above that affected the earnings on a non-GAAP basis, partially offset by a reduction in Warnaco integration and restructuring costs incurred compared to the prior year’s second quarter.

Net interest expense decreased to $28 million from $34 million in the prior year’s second quarter due principally to lower average debt balances. The effective tax rate on a non-GAAP basis decreased to 21.5 percent compared to 26.9 percent in the prior year’s second quarter due to certain favorable discrete items in the current quarter. The effective tax rate on a GAAP basis increased to an expense of 19.0 percent compared to a benefit of 0.8 percent in the prior year’s second quarter, as the prior year effective tax rate included a discrete benefit of approximately $30 million related to the favorable resolution of uncertain tax positions.

Six Months Consolidated Results:

Earnings per share on a non-GAAP basis for the first six months of 2015 was $2.87, inclusive of a $0.58 negative impact primarily related to foreign currency exchange rates compared to the prior year period. Earnings per share on a non-GAAP basis excluding the negative impact primarily related to foreign currency exchange rates was $3.45, or an increase of 16 percent compared to earnings per share on a non-GAAP basis of $2.98 in the prior year period. GAAP earnings per share was $2.59 compared to $1.94 in the prior year period.

Revenue increased 3 percent on a constant currency basis (decreased 5 percent on a GAAP basis) compared to $3.94 billion in the prior year period.

The revenue change was due to:

  • A 4 percent increase on a constant currency basis (3 percent decrease on a GAAP basis) in the Calvin Klein business compared to the prior year period, primarily driven by strong performance in Europe, as well as in Asia, which included a benefit due to the Chinese New Year, as the first quarter of fiscal 2015 included a Chinese New Year while the first quarter of fiscal 2014 did not. International retail comparable store sales increased 6 percent. North America retail comparable store sales increased 2 percent despite the decreased traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar.
  • A 3 percent increase on a constant currency basis (9 percent decrease on a GAAP basis) in the Tommy Hilfiger business compared to the prior year period. Tommy Hilfiger North America revenue increased 1 percent on a constant currency basis (decreased 1 percent on a GAAP basis) inclusive of a 2 percent decrease in retail comparable store sales attributable to the decline in traffic and spending trends in the Company’s U.S. stores located in international tourist locations as a result of the strengthening U.S. dollar. Tommy Hilfiger International revenue increased 4 percent on a constant currency basis (decreased 15 percent on a GAAP basis), driven principally by European retail comparable store sales growth of 6 percent and low-single digit percentage wholesale growth on a constant currency basis.
  • Relatively flat revenue in the Heritage Brands business compared to the prior year period, as an 11 percent retail comparable store sales increase in the Van Heusen business was offset by the prior year’s second quarter having the benefit of the sales attributable to the launch of IZOD at Kohl’s.
  • Earnings before interest and taxes on a non-GAAP basis increased 3 percent on a constant currency basis (decreased 9 percent including foreign currency exchange rate impacts) from $409 million in the prior year period. Strong performance in the Calvin Klein business on a constant currency basis was partially offset by a decline in the Tommy Hilfiger business due to weak international tourist traffic in the U.S., which drove more promotional selling, resulting in lower gross margins. A $6 million increase in corporate expenses attributable to associate-related benefits, primarily pension expense, also negatively impacted earnings.

Earnings before interest and taxes on a GAAP basis was $331 million compared to $244 million in the prior year period. The increase was primarily due to the absence in 2015 of $93 million of debt modification and extinguishment costs and a reduction in Warnaco integration and restructuring costs compared to prior year period, partially offset by the negative impact of foreign currency exchange rates and expenses incurred in 2015 in connection with operating and exiting the Izod retail business and exiting various product lines in the Heritage Brands dress furnishings business.

Net interest expense decreased to $58 million from $74 million in the prior year period due to lower average debt balances and interest rates, combined with the effect of the amendment and restatement of the Company’s credit facility during the first quarter of 2014 and the related redemption of its 7 3/8 percent senior notes due 2020. Since the Warnaco acquisition, the Company has made repayments of approximately $1.1 billion on its long-term debt.

Stock Repurchase Program

During the second quarter of 2015, the Company repurchased approximately $15 million of its common stock under the $500 million three-year stock repurchase program authorized by the Board of Directors in June 2015. Stock repurchases under this 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 stock repurchase program may be modified, including to increase or decrease the repurchase limitation or extend, suspend, or terminate the program, by the Company at any time, without prior notice.

2015 Guidance

The Company currently expects its full year earnings per share results to be negatively impacted versus the prior year by (i) approximately $1.20 per share from foreign currency exchange rates due to the significant strengthening of the U.S. dollar against other currencies in which the Company transacts significant levels of business, and (ii) volatility in the global macroeconomic environment, particularly with respect to the Company’s businesses in Russia. The Company continues to expect a negative impact of approximately $0.10 per share from its Russia businesses due to political and economic instability in the region.

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

Earnings per share for the full year 2015 is currently projected to be in a range of $6.90 to $7.00 on a non-GAAP basis, which includes the expected $1.30 negative impact related to foreign currency exchange rates and pressures on the Company’s Russia businesses, as described above. Excluding this negative impact, earnings per share on a non-GAAP basis is expected to increase 12 percent to 14 percent compared to the prior year’s non-GAAP earnings per share of $7.30.

Revenue in 2015 is currently projected to increase approximately 4 percent on a constant currency basis (decrease approximately 2 percent on a GAAP basis) as compared to 2014. It is currently projected that revenue for the Calvin Klein business will increase approximately 8 percent on a constant currency basis (increase approximately 1 percent on a GAAP basis). Revenue for the Tommy Hilfiger business is currently expected to increase approximately 4 percent on a constant currency basis (decrease approximately 5 percent on a GAAP basis). Revenue for the Heritage Brands business is currently projected to decrease approximately 3 percent.

Net interest expense for the full year 2015 is expected to be approximately $120 million compared to the 2014 amount of $139 million, mainly due to lower average debt balances.

The Company currently expects to generate approximately $450 million of free cash flow in 2015, which will be used primarily to repay approximately $350 million of debt, of which $166 million was repaid during the first half of the year, as well as to repurchase stock.

The Company currently estimates that the 2015 effective tax rate will be approximately 21.5 percent.

The Company’s earnings per share estimate on a non-GAAP basis excludes approximately $55 million of pre-tax costs associated primarily with the Warnaco integration and related restructuring, $15 million of pre-tax costs associated with operating and exiting the Izod retail business and $6 million of pre-tax costs associated with exiting various product lines in the dress furnishings business. (Please see section entitled “Non-GAAP Exclusions” for details on these pre-tax costs.)

Third Quarter Guidance

The Company currently expects its third quarter 2015 earnings per share results to be negatively impacted versus the prior year period by approximately $0.40 per share primarily from foreign currency exchange rates due to the significant strengthening of the U.S. dollar against other currencies in which the Company transacts significant levels of business.

Third quarter 2015 earnings per share on a non-GAAP basis is currently projected to be in a range of $2.45 to $2.50, which reflects an expected $0.40 per share negative impact primarily related to foreign currency exchange rates as described above. Excluding this negative impact, earnings per share on a non-GAAP basis is expected to increase 11 percent to 13 percent compared to the prior year’s third quarter non-GAAP earnings per share of $2.56.

Revenue in the third quarter of 2015 is currently projected to increase approximately 3 percent on a constant currency basis (decrease approximately 3 percent on a GAAP basis) compared to the prior year’s third quarter. It is currently projected that revenue for the Calvin Klein business in the third quarter will increase approximately 7 percent on a constant currency basis (increase 1 percent on a GAAP basis). Revenue for the Tommy Hilfiger business in the third quarter is currently expected to increase approximately 4 percent on a constant currency basis (decrease approximately 4 percent on a GAAP basis). Revenue for the Heritage Brands business in the third quarter is currently projected to decrease approximately 5 percent due in part to the closure of the Izod retail business.

The Company currently projects that the third quarter 2015 net interest expense will be approximately $30 million, a reduction of approximately $2 million compared to the third quarter of 2014, mainly due to lower average debt balances and interest rates. The Company currently estimates that the third quarter effective tax rate will be approximately 18 percent.

The Company’s third quarter earnings per share estimate on a non-GAAP basis excludes approximately $15 million of pre-tax costs associated with the integration and related restructuring of Warnaco, $8 million of pre-tax costs associated with operating and exiting the Izod retail business and $3 million of pre-tax costs associated with exiting various product lines in the dress furnishings business.