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current news

PVH: Q4 2016 Income -25%, Sales Off Slightly


(Filed Under Financial and General Interest News). PVH is becoming far less dependent on the U.S. in general and our department stores in particular, while focusing ever more heavily on its two key brands, Calvin Klein and Tommy Hilfiger. At the same time, internet sales have become its fastest growing segment, and underwear is still a prominent component.

Such is clear from the company’s recent financial report for 2016, comments in the accompanying conference call, and its recent acquisition of the internet lingerie retailer, True & Co.

Overall, PVH, which produces a wide variety of men’s, women’s and kids apparel, in addition to owning several lingerie and underwear brands, reported a 25% drop in net income on slightly lower sales for the fourth quarter ended January 29, 2017. For the three months, the company earned $100.5 million on total revenue of $2.108 billion compared to net income of $134.2 million on revenue of $2.113 billion for the quarter ended January 31, 2016. For the full year, the company earned $548.7 million on total revenue of $8.203 billion, compared to $572.4 million on revenue of $8.020 in 2015.

In the conference call to discuss the results, Emanuel Chirico, chairman and CEO, noted that “Calvin Klein underwear continue to experience strong global momentum, particularly in women’s and we believe that significant white space still remains.” He added, “our spring 2017 wholesale order book is up about 20% and I’m very pleased to report that our fall 2017 order book is up north of 25%. The strength of the business across all distribution channels is coming from all major markets across all product categories, with an acceleration in both jeans and the underwear categories.”

Speaking about the acquisition of True & Co., which occurred shortly before the quarterly financial release, the CEO explained, the retailer is “a relatively small business today. What it provides us is with the platform and expertise particularly from a data mining point of view with the consumer. And we’re really going to use it as a laboratory to understand that business better. We believe we can grow the True brand globally effectively given our intimate expertise both from a logistics and sourcing point of view. I think they were lacking in those capabilities, but clearly had great capabilities from a digital point of view. So we’re going to have to see how it all plays out, it’s a relatively small acquisition for us, but it could be a very exciting acquisition as we go forward.”

What is particularly interesting about the True & Co. purchase is the growing importance Chirico now places on his own direct internet sales to consumers. Even recently, Chirico had seemed to downplay this. For example, in a conference call last summer, Chirico declared, “I think competitors, whoever they are, have much bigger direct e-commerce sites than we have. We have made the strategic decision to partner with our department store customers to really expand their e-commerce businesses to make investments on their platforms, that our brands are well-positioned not only in their brick and mortar stores but also in their e-commerce sites.” Now he has acquired a prominent e-commerce site of his own.

The obvious reason for the change is that the “digital channel” now accounts for “about $1 billion” in retail sales, and in both the fourth quarter and full year, generated “revenue growth in excess of 20%. And this channel continues to be our fastest growing distribution channel.”

“This acquisition will enable us to further participate in this fast growing online channel and provides a platform to increase innovation data driven decisions and speed in the way we see -- we serve our consumers. We believe that over time we will also be able to leverage the mindset and expertise of this model across our other apparel businesses.”

Speaking about other aspects of the company’s business, Chirico noted that while the company’s U.S. outlet stores have begun to “stabilize a bit,” “our international business continues to outpace our domestic growth, which is further diversifying our revenue and earning streams. We believe this trend will only continue to accelerate in 2017.”

In the conference call Chirico further emphasized the international aspects of the company. “Today 50% of our revenues are outside the United States, I think that’s larger than just about every other major U.S. apparel maker. I think it’s critical as we go forward to continue to fuel that growth and we’re seeing that growth in Europe and Asia really accelerating. As we’ve made the investments over the last two years to really grow that business and those business are by far are highest operating margin businesses.” He added, that compared “against the major players in the U.S. market, I think we are significantly more diversified both from a sales and an earnings point of view geographically with 50% of our sales occurring outside the U.S. and more than 50% probably close to 60% of our profits outside the U.S.”

The conference call also touched on PVH’s declining reliance on U.S. department stores. One analyst asked Chirico about this: “Is it fair to say the department store penetration is at or below 20%, I mean when you factor in off price and your own retail and Amazon in the U.S. is that a fair characterization?” And Chirico replied, “Okay. But we don’t get into all of that, but you are pretty close, I don’t think it’s over that far off. So I think that’s a reasonable perspective when you look at it.” Elsewhere the CEO noted, “The department store sector in North America, in the United States in particular, it’s very important to us and it’s the highly profitable channel. And those retailers are great strategic partners as we work together. But I think it’s pretty clear that over the last seven years we’ve done a lot to significantly diversify our business model.”

Chirico also pointed out that “the challenges that we’re facing in brick and mortar in the United States has to do with there is too many stores.” He stated that in Europe and “in Asia even to a greater extent is the level of retail square footage on a per capita basis is just significantly lower, 50% lower than it is in the United States.”

In Europe, “the retail landscape, particularly on the department store side and specialty multi-brand stores, it’s just much more fragmented than in the United States.” He continued, “There is no pan-European department store, it’s really regional department stores most times country specific.” He concluded, “our top 20 retailers in Europe represent about 30% of the business, our top 10 retailers in the United States represent 90% of the business, just to give you a frame of reference.” — NM

The complete transcript of the conference call can be found here: https://seekingalpha.com/article/4057528-pvhs-pvh-ceo-manny-chirico-q4-2016-results-earnings-call-transcript?page=1


more Financial and General Interest News >>

Published 03-28-2017 by Nick Monjo

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