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Stock Strategist

PVH Is Dressed for Success

The apparel maker has built a narrow moat with a portfolio that’s diverse by brand, geography, and channel.


 PVH (PVH) announced that it is in discussions to amend the credit facility entered into in February 2013 to increase the principal amount of the term loans. The proceeds of the increased loans will be used to redeem all of the outstanding 7.375% senior notes due 2020. The transaction is expected to close at the end of March. Additionally, PVH announced that during fiscal 2013, it repaid about $500 million of term loans under the credit facility, above our expectation of $400 million. Although none of these transactions will affect our fair value estimate of $140 per share or our Narrow Economic Moat Rating, we see these moves as evidence of good management stewardship and expect that this rebalancing will lower PVH’s overall interest expense.

Management reaffirmed its updated fourth-quarter guidance provided Jan. 10, calling for revenue of $2.06 billion and adjusted earnings per share of $1.40, in line with our estimates. Although we continue to believe that performance in the first half of 2014 may be muted given an ongoing promotional environment, turnaround efforts in the Calvin Klein jeans business and heritage brands retail business, and weakness in Southern Europe, we are bullish on the long-term outlook of this stock. We expect cost synergies of $100 million over the next four years from the Warnaco acquisition and think we will see signs of returns on the acquisition as early as the second half of the year. Overall, we think PVH can achieve a compound annual growth rate of 6% in revenue and 9% in adjusted operating profit (200 basis points of margin expansion to 13.8%) over the next five years.

Bridget Weishaar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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