PVH Corp. Has What It Takes To Win In Tough Times
We were not surprised to see PVH Corp. (NYSE: PVH) post strong results and guidance, not after competitor Ralph Lauren did the same. The two share a few traits common among today’s retail winners including brands that resonate, a focus on eCommerce, and DTC sales that are not tied to indoor malls. In the case of PVH Corp., a recent realignment toward DTC and digital helped boost the current quarter results and will help sustain relevancy if not revenue growth over the next few years. The takeaway is that price action in the shares has been in a downtrend since hitting the post-pandemic peak late in 2021 and it looks like that downtrend is over. Not only do the results and outlook suggest the stock is undervalued at 7.9X earnings but there is a robust buyback program in play, the analysts see double-digit upside for the shares, and the institutions are buying the stock too.
Institutional Money Helps PVH Shares Bottom
On the institutional end of the spectrum, sell-side activity has been net-bullish for the last 4 consecutive quarters and for 12 of the last 13 bringing total ownership up to over 98% of the stock. The activity hit a peak in Q3 of 2021 and then accelerated in again in Q2 of 2022 which we find interesting. We find this fact interesting because the activity coincides with bottoming activity in the price action and the analysts think the stock is grossly undervalued.
The 16 analysts covering the stock rate it a firm Hold which is down from last year’s weak Buy but the price target is what we are interested in now. The consensus price target is down versus 3 months ago and edging lower in the wake of the Q1 report but still more than 50% above the current price action which brings us to the buyback program. The company is expecting to repurchase an amount worth another 6.25% of the current market cap by the end of the year and there will be double that amount left under the now-active repurchase authorization. In our view, that is no small amount and should provide ample support for price action in the event of downturns.
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PVH Corp. Has Strong Quarter, Reaffirms Guidance
PVH Corp. had a solid Q1 period despite the negative impacts of FX headwinds, divestiture, and the war in Ukraine. The company reports $2.13 billion in consolidated revenue for a gain of 2.4% over last year. This revenue beat the Insidertrades.com consensus figure by almost 200 basis points and includes 430 basis points of FX headwind and another 600 related to divestiture and Ukraine.
On a segment basis, Calvin Klein led with a gain of 13% (17% FX neutral) followed by a 2% increase at Tommy Hilfiger. The Heritage Brands segment fell by 31% due to divestiture but still contributed to top-line strength. On a channel basis, DTC sales increase by 9% on an FX-neutral basis while digital sales fell by 14%. The decline in digital sales is not a worry, however, due to the tough comp to last year. Last year, digital sales surged by 66% in Q1.
As for earnings and guidance, the $1.94 in GAAP EPS is not only $0.35 better than expected but contrary to an expected decline versus last year. The strength led the company to maintain the FY EPS guidance which is in line with the consensus while lowering the revenue guidance. The revenue guidance was lowered, however, due to FX headwinds and not a weakness in the business.
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