Company Reports

Once known as a producer of midtier men's shirts, PVH transformed itself by purchasing fashion brand Calvin Klein in 2003, Tommy Hilfiger in 2010, and Calvin Klein licensee Warnaco in 2013. More recently, it disposed of most of its noncore labels to focus on Calvin Klein and Tommy Hilfiger. While now lacking diversification, we think it was prudent for the firm to focus on its highest-potential properties and returning capital to shareholders through share repurchases. However, although they are popular worldwide, we do not believe that either of PVH’s major brands has the pricing power or competitiveness to provide a moat.

No-moat PVH’s fourth-quarter results beat our forecast, but its shares plummeted 22% on April 2 as the company issued a disappointing 2024 outlook. Specifically, the firm projects a 6%-7% sales decline for the year, below our forecast for a 1% drop, due to weakening consumer demand for apparel in Western Europe and a difficult North America wholesale channel. Further, this sales shortfall is expected to lead to an operating margin and EPS of 10.1% and $10.75-$11.00, respectively, shy of our 10.9% and $11.66 estimates.

Once known as a producer of midtier men's shirts, PVH transformed itself by purchasing fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger in 2010 and then purchased Calvin Klein licensee Warnaco in 2013. Although they are popular, we do not believe that either of these major brands has the pricing power or competitiveness to provide a moat. PVH has recently disposed of its smaller brands. While now lacking diversification, we think it was prudent for the firm to focus on its highest-potential properties and on returning capital to shareholders through share repurchases.

PVH’s third-quarter profitability exceeded our expectations even as 3.6% revenue growth was short of our 5.5% estimate due to weather and economic conditions. While the near-term sales outlook is soft, we think PVH is making good progress on its PVH+ plans, including product enhancements, stronger digital sales, cost-cuts, pricing, and inventory management (down 19% at quarter’s end), and that these efforts are improving margins. Thus, we expect to lift our $141 fair value estimate by a low-single-digit percentage. Although we rate PVH as a no-moat firm, we believe it has strengths, including the international appeal of its brands, and that its shares are very attractive.

Once known as a producer of midtier men's shirts, PVH purchased fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger in 2010 and then purchased Calvin Klein licensee Warnaco in 2013. Although they are popular, we do not believe that either of these major brands has the pricing power or competitiveness to provide PVH with a moat.

No-moat PVH reported second-quarter sales and non-GAAP earnings that surpassed our forecast despite a 3% sales decline in wholesale sales (47% of total) as direct-to-consumer sales (53% of total) jumped 11%. While North America wholesale demand is likely to remain soft, the firm held to its guidance for 3%-4% sales growth in 2023. PVH’s results and guidance suggest that it is making progress under key PVH+ plans, including product enhancements, stronger digital sales, inventory management, and cost cuts. We do not expect to make any material change in our $141 per share fair value estimate and view PVH as attractive.

Once known as a producer of midtier men's shirts, PVH purchased fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger in 2010 and then purchased Calvin Klein licensee Warnaco in 2013. Although popular, we do not believe that either of PVH’s major brands has the pricing power or competitiveness to provide it with a moat.

PVH’s sales and earnings eclipsed our expectations in its 2023 first quarter. However, this result was somewhat overshadowed by disappointing second-quarter guidance, sending shares down 10%. Still, as the firm affirmed its full-year outlook for 3%-4% sales growth, a 10% operating margin, and $10 in EPS, and our estimates are close to these marks, we do not expect to make any material change to our $141 per share fair value estimate and view shares as very attractive. Although we see PVH as a no-moat company due to the competitiveness of its industry, we believe its two main brands, Tommy Hilfiger (52% of the quarter’s sales) and Calvin Klein (41% of sales), are among the few brands with global appeal and believe that the PVH+ plan (product enhancements, stronger e-commerce, inventory management, and cost cuts) will lift operating margins to 12% from the current 10% by 2025.

Once known as a producer of midtier men's shirts, PVH purchased fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger in 2010 and then purchased Calvin Klein licensee Warnaco in 2013. Although popular, we do not believe that either of PVH’s major brands has the pricing power or competitiveness to provide it with a moat.

Shaking off macroeconomic and industry concerns, PVH’s sales and earnings in 2022’s fourth quarter exceeded our forecast. Moreover, its 2023 guidance for 3%-4% sales growth, a 10% operating margin, and about $10 in EPS compares favorably with our prior estimates of 2%, 9%, and $8.90, respectively. PVH’s shares soared roughly 20% on the report, but we still view them as very undervalued relative to our $136 fair value estimate, which we expect to lift by a mid-single-digit percentage. Although we classify it as a no-moat firm, we also believe that its key brands have international appeal and that its PVH+ plan (focused on product enhancements, stronger e-commerce, inventory management, and cost cuts) is sound.

Once known as a producer of midtier men's shirts, PVH purchased fashion brand Calvin Klein in 2003. It acquired a second large fashion brand in Tommy Hilfiger (2010) and Calvin Klein licensee Warnaco (2013). We believe that neither of PVH’s major brands has the pricing power or competitiveness to provide it with a moat. Moreover, the firm is dealing with the war in Ukraine, shipping delays, inflation, depreciation of the euro versus the U.S. dollar, and higher taxes. We estimate its adjusted EPS will drop about 18% this year.

No-moat PVH reported third-quarter profitability that exceeded our forecast despite the strong U.S. dollar, economic challenges in Europe (its largest region) and North America, and virus-related restrictions in China. This result provides confidence that, although in early stages, the company’s PVH+ plan for product enhancements, stronger e-commerce, cost-cutting, and inventory control is progressing. Investors reacted positively to the results, sending the shares up about 10% on the day after the release. Even so, PVH still trades well below our $131 fair value estimate, which we expect to lift by a mid single-digit rate. We believe that the market is pricing in medium-term expectations that are much too pessimistic and that PVH is poised to improve its operating margin to nearly 13% over the next three years from about 9% now.

Investors have forsaken apparel manufacturers and retailers, which we believe present numerous attractive opportunities. These firms have struggled with many issues in 2022, including higher inventories, lower operating margins, inflation, logistical challenges, tough comparisons with 2021, low international travel, and an extremely strong U.S. dollar. However, we see positive signs. In recent weeks, shipping has shown signs of normalizing, and gas prices have dropped. Moreover, we anticipate inventory levels will improve as manufacturers cancel shipments and sales increase in the holiday season (as is typical). In 2023, we anticipate the benefits of investments in supply chains and other operations by many apparel firms will become more apparent. Consequently, despite widespread pessimism in the market, we believe now is a good time to consider the many apparel stocks trading well below our fair value estimates.

We believe that neither Tommy Hilfiger nor Calvin Klein has the pricing power or competitiveness to provide PVH with a moat. Moreover, the firm is dealing with the war in Ukraine, shipping delays, inflation, depreciation of the euro versus the dollar, and higher taxes. We anticipate its adjusted EPS will drop about 20% this year.

Affected by the strong U.S. dollar, economic weakness in some areas, and supply issues, no-moat PVH reduced its guidance. The company now expects 2022 adjusted EPS of about $8, below its prior outlook of approximately $9 and our $9.19 estimate. While currency issues are affecting all multinational apparel firms, PVH’s exposure is extreme as Europe is its most important market (48% of 2021 sales). Apart from external factors, however, we believe the company continues to make progress on the PVH+ plan that was unveiled at an analyst event in April. Thus, despite the dimmed near-term outlook, we think it remains on track for profitability improvement and do not expect to make any material change to our $131 fair value estimate. We continue to view PVH, trading at a single-digit P/E on depressed earnings, as attractive. We think investors are overly concerned about market turmoil and short-term problems and are overlooking the impact that investments in its two global brands, Tommy Hilfiger and Calvin Klein, should have on its sales and margins.

No-moat PVH laid out aggressive growth and margin improvement plans centered on its two major brands, Tommy Hilfiger and Calvin Klein, at an April 2022 investor event. Yet, its shares trade at less than one half our fair value estimate of $131 as pessimism appears to have taken hold. While we acknowledge some of PVH’s financial goals may not be met, we envision progress and believe its low valuation provides an attractive margin of safety.

We believe that neither Tommy Hilfiger nor Calvin Klein has the pricing power or competitiveness to provide PVH with a moat. Moreover, the firm is dealing with the war in Ukraine, shipping delays, inflation, depreciation of the euro versus the dollar, and higher taxes. We anticipate its adjusted EPS will drop about 10% this year.

PVH managed multiple challenges—including product shortages due to shipping delays, the war in Ukraine, a stronger U.S. dollar, and China lockdowns—to post first-quarter results above our expectations. The firm recorded 2% sales growth (7% constant currency) versus our forecast of flat and an operating margin of 9.9%, 140 basis points better than our projection. Although the external pressures have continued into the second quarter, the firm’s guidance for $9.00 in adjusted earnings per share for the year basically matches our forecast. Thus, we do not expect to make any material change to our $129 fair value estimate. We view the shares as materially undervalued.

We do not believe PVH's Tommy Hilfiger and Calvin Klein have the pricing power or competitiveness to provide a moat for the company. Moreover, PVH is dealing with a host of issues, including adverse effects of the pandemic, inflation, depreciation of the euro versus the dollar, and higher taxes. Therefore, we do not forecast PVH will reach its targets of 2025 revenue, operating margin, and free cash flow of $12.5 billion, 15%, and $1 billion, respectively, under its new PVH+ plan of greater e-commerce, cost efficiencies, and elevated product. Instead, our estimates are $10.7 billion, 12%, and $900 million, respectively. Even so, we view its key brands as generally healthy, and expect profitability to improve in 2023.

Although no-moat PVH’s fourth-quarter 2021 results exceeded our expectations, this performance was overshadowed by a host of issues that are impacting it in 2022, including the war in Ukraine, inflation, depreciation of the euro, the end of a favorable tax treaty in the Netherlands, and effects of the pandemic. The firm guided to 2022 EPS of $9.00, short of our $10.14 forecast, due to these factors. Even so, its projections for constant-currency sales growth of 6%-7% and an operating margin of 10% are in line with our expectations, suggesting the underlying business is healthy. Thus, given both positive and negative factors, we do not expect any material change to our $129 fair value estimate and view PVH’s shares, down about 6% on the news, as significantly undervalued at a P/E of less than 10.