PVH Tops Earnings Estimates, Plans to Drive Inventory Efficiency

Stefan Larsson has been on a mission to trim and simplify at PVH Corp. — focused on driving more consumers to Tommy Hilfiger and Calvin Klein while building a lean and quick-turn business infrastructure to meet the demand.

That road ahead has been clear since Larsson, chief executive officer, laid out his PVH+ strategic plan in April last year.

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But the question was always whether it was a path the company could actually walk down and if consumers would follow.

The answer so far is yes.

PVH managed to navigate a choppy consumer landscape in the second quarter to show revenue growth, double-digit gains in the direct-to-consumer business and better-than-expected earnings, after adjusting for costs associated with a round of layoffs in the second quarter.

“At the end of the day, what we’re doing is we are taking Calvin and Tommy, which are these two uniquely global iconic brands, and our job is to consistently lean into the DNA of those brands and drive desirability,” Larsson told WWD. “At the same time, we’re building an underlying business engine that enables us to drive those consumer-facing improvements in a more systematic and repeatable way.”

The next step at PVH is inventory, which was up 6 percent at the end of the quarter, in line with projected sales growth.

PVH plans to improve inventories in relation to sales, setting a hard target. Larsson expects to get this done by focusing on hero products, more precise data-driven planning up front, better allocation and a supply chain that can deliver more efficiently.

Stefan Larsson
PVH Corp. CEO Stefan Larsson.

Larsson, who got his start at H&M, is clearly using some tricks learned during his formative days in fast fashion and applying them to Calvin Klein and Tommy Hilfiger — while trying to telegraph a certain steady reliability to Wall Street (which loves reliability).

“This is another quarter of delivering what we said we were going to do,” Larsson said.

Second quarter net income was weighed down by $60 million in pretax restructuring costs — part of its plan to reduce its “people costs” by 10 percent by the end of this year — ultimately pushing profits down 18.3 percent to $94.2 million from $115.3 million.

But adjusted earnings per share came in at $1.98, a full 22 cents ahead of the $1.76 analysts projected, according to FactSet.

Revenues for the quarter ended July 30 increased 3.5 percent to $2.2 billion, a rise of 2 percent in constant currencies and in line with both the company’s projections and Wall Street’s expectations.

The gains were driven by an 11 percent increase in the company’s direct-to-consumer business, which were partially offset by a 3 percent decline in wholesale sales.

Tommy Hilfiger’s revenues increased 6 percent while Calvin Klein was up 3 percent.

Wholesale has been a tough spot all around, for PVH and its competitors as department stores take a cautious approach to orders given lingering consumer uncertainties even though the economy has so far avoided a widely feared recession.

PVH has moved to take full control of its North American wholesale business, phasing out a series of licensing deals with G-III Apparel Group and bringing the businesses in house.

The CEO said that work is ongoing.

“We are in a very good place with our multiyear takeback plan and activities,” he said. “We have already secured the products, we have secured the pricing, the relationships with the wholesale partners where we cocreate the path forward.”

In the more immediate future, Larsson said shoppers are holding up and that PVH is in good shape headed into the back half.

“The consumer has choices and they’re choosing Calvin and Tommy,” he said.

“We are in a great inventory situation,” he said. “The composition is more geared toward fall and newness than what we had last year, so a really good position to be in. When we look at Q3 and the back half we continue to see the trends continuing to be strong. We have confidence in our execution.”

For the full year, PVH boosted its outlook for adjusted EPS to $10.35 from the $10 previously  forecast. Revenues are still expected to rise by 3 percent to 4 percent.

The company also said it completed $200 million in stock repurchases in the quarter and plans to buy up to $400 million for the full year.

Overall, Wall Street liked what the numbers said, driving PVH shares up 2.1 percent in after-market trading to $82.99 on top of a 3 percent gain earlier in the day.

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