NYSE:PVH PVH CORP.
Sector financial performance:
This company, who primarily designs, sources, markets, and distributes lifestyle-casual apparels for men and women mainly through wholesale, licence of brand, and retail/ecommerce sites, has been grouped into lifestyle apparel –own brand( wholesale) sector in clothing industry.
From companies in this sector we can clearly see the different trends or timing of trend of demand for branded lifestyle apparels between Europe and China and US market, which have been determined by differences in macroeconomics and consumers’ shopping pattern among markets. Demand in Europe and China has been very strong in the past three years as indicated by both double digits growth in wholesales and high single digit growth in retail of companies in this sector in those markets. Demands in US market, the sales more accurately, have decreased since 2015 as indicated by declining comparable store sales and struggling wholesales. However, the weak demand seems to be getting reversing since the second half of 2017 as indicated by jump in wholesales (double digits) in US market and strong increase in store sales (middle single digits).
As a result of shifting of sales mix to Europe and china market, which have higher gross margin, and as well decreasing promotion/markdowns in US market, companies’ gross margins actually were improved . While higher SG&A costs as a result of expansion of international market, companies’ operating margins also increased in the past three years. Increase in sales from international market and the recent increase in US market, helped improve margin and brought positive growth in income and cash flow for those companies in this sector.
The current average gross margin is 49% in this sector (license income and depreciation, distribution, stores rental costs excluded) with an average SG&A as percentage of sale of 46% and a license income as percentage of sale of 6%. And this makes an average operating margin of 9%.
According our analysis, companies’ enterprise price/EBI ratios are 24 with interest/EBI ratios of 11%.
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Company performance:
The demand for apparels of this company’s core brands from its retail customers in Europe and China has been very strong as indicated by the fast growth in its wholesales in the past four years. Its own retail sales of international market as indicated by comparable store sales in those markets have also grown while not as fast as its wholesales. In North America market, the wholesale of its core brands have kept decreasing before 2017 but decline slowed down in 2017 and turned into very strong growth in 2018, which generated high double digits growth rates for both brands. The strong demand of 2018 also has been reflected by their retail stores as indicated by the decrease in comparable stores sales.
The first six months of fiscal 2018 compared with the same period of 2017(ended 20180805)
The organic sales of CK North America increased 15% and organic sales of CK international increased 14%. The sale of TH North America increased 11% flat and organic sales of TH international increased 13%.
Growth in comparable stores sales (retail):
CK North America CK international TH North America TH international
4% 7% 7% 10%
The fiscal 2017 compared with 2016
The organic sales of CK North America increased 1% and organic sales of CK international increased 18%. The sale of TH North America was flat and organic sales of TH international increased 15%.
Growth in comparable stores sales (retail):
CK North America CK international TH North America TH international
-1% 6% 3% 8%
The first 26 weeks of fiscal 2017 compared with the same period of 2016
The organic sales of CK North America decreased 1% and organic sales of CK international increased 17%. The sales of TH North America decreased 3% and organic sales of TH international increased 14%.
Growth in comparable stores sales (retail):
CK North America CK international TH North America TH international
-3% 5% -1% 9%
Fiscal 2016 compared with 2015
The organic sales of CK North America increased 4% and organic sales of CK international increased 15%. The sales of TH North America decreased 4% and organic sales of TH international increased 13%.
Growth in comparable stores sales:
CK North America CK international TH North America TH international
-4% 6% -9% 9%
Fiscal 2015 compared with 2014
The organic sales of CK North America increased 8% and organic sales of CK international increased 11%. The sales of TH North America increased 1% and organic sales of TH international increased 5%.
Growth in comparable stores sales:
CK North America CK international TH North America TH international
2% 5% -5% 8%
As we have seen, due to the majority of sales growth come from its international market, unfavourable currency significantly impacted its financial performance before 2017.
This company’ gross margins was about 49% (license income and depreciation, distribution, stores rental costs excluded) in 2017 up from about 47% of 2014 primarily due to products mix’s shifting to higher margin segment and less promotions. Increased gross margin, working with increased income from brand license and offset by increased SG&A as percentage of sales, push its operating margin to go up to about 8% in 2017. Gross margin continued to be improved in 2018(about 49%) , together with improved SG&A%(46%), and pushed up the operating margin to 9% in 2018.
Stock price
This stock currently has an enterprise price/EBI ratio of 24 ($132). We think that its stock is being relatively undervalued considering that its continuously strong growth in Europe and China has been offset largely by unfavourable currency. The recent recovery in US market may amek its current price not enough to reflect the real value of this company.
