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Stock Strategist

Calvin Klein Recovery Playing Out in First Quarter at PVH

Even with a boost in shares on first-quarter results, PVH stock trades at an attractive margin of safety.


 PVH (PVH) possesses a varied portfolio of brands, which we believe are strong enough and have a high enough market demand to command an economic moat. The company's first-quarter results reinforced our Calvin Klein recovery thesis, with mid-single-digit constant-currency revenue growth and a 25% constant-currency operating earnings increase at the brand. Furthermore, we believe that management’s guidance increase (2015 EPS in the range of $6.85-$6.95 from the prior $6.75-$6.90) indicates that market-share gains are sustainable.

We expect little change to our $128 fair value estimate, as these results align with our previous expectations for mid-single-digit full-year growth at Calvin Klein and our above-guidance 2015 EPS estimate of $6.93. We continue to think that PVH possesses a narrow economic moat given its scale and retail relationships, and that management will use this advantage to reposition Calvin Klein in full-price channels, providing both acceleration in top-line growth and margin upside. We think Calvin Klein will benefit from full-price sales in Europe (jeans margins are flat now), jeanswear product improvements, selling square footage increases, and growth in Asia and Latin America. For Tommy Hilfiger, underpenetrated markets offer geographic expansion opportunities, and moving licenses in-house has potential.

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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