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Calvin Klein Parent PVH Sounds Caution on Tariffs Heading Into Q4

PVH saw revenue rise and income fall in the third quarter, and said it faces headwinds in the fourth quarter and beyond.

In a Nutshell: PVH Corp. reported third-quarter results that were above guidance and raised its full-year outlook but warned that the impact of tariffs limited its earnings forecast.

Third-quarter earnings per share (EPS) were $2.82 compared to guidance of $2.70 to $2.75. EPS included a negative impact of 9 cents per share related to foreign currency translation.

PVH raised its full year 2019 EPS outlook to $8.04–$8.06 from $7.95–$8.05 previously. The EPS outlook includes a negative impact of 35 cents per share related to foreign currency translation.

The company said its 2019 guidance incorporates the impact of tariffs imposed and expected to be imposed by the U.S. on certain of the company’s products  imported from China into the U.S., including $250 billion currently at 25% and $300 billion at 15% imposed in September and expected to be imposed on certain other goods in December 2019. These tariffs are expected to have a negative impact of approximately 20 cents per share in 2019.

Revenue in 2019 is projected to increase approximately 1% compared to 2018. Revenue for the Tommy Hilfiger business is projected to increase approximately 6%, while revenue for the Calvin Klein business is projected to decrease approximately 2%.

Sales: Revenue for the third quarter ended Nov. 3 increased 3% to $2.59 billion compared to revenue of $2.52 billion in the same period of 2018, exceeding guidance.

Revenue in the Calvin Klein business increased 1% to $969 million compared to the prior year’s period. Calvin Klein International revenue rose 7% to $514 million, driven by continued solid growth in Europe, partially offset by softness in Asia due, in part, to the business disruptions caused by the ongoing protests in Hong Kong and the trade tensions between the U.S. and China. International comparable store sales decreased 2%.

Calvin Klein North America revenue decreased 5% to $455 million compared to the year-ago quarter, principally due to a decline in the wholesale business, including the effect of licensing the company’s directly operated women’s wholesale jeans business in the U.S. and Canada to G-III Apparel Group, and a 4% falloff in North America comparable store sales due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.

Revenue in the Tommy Hilfiger business increased 10% to $1.2 billion compared to the prior year’s period. Tommy Hilfiger International revenue rose 16% to $821 million, primarily driven by continued outperformance in Europe. International comparable store sales were up 8%.

Tommy Hilfiger North America revenue of $423 million was flat compared to the same period in 2018 since growth in the North America wholesale business was offset by a 5% decline in North America comparable store sales due to continued weakness in traffic and consumer spending trends, especially in stores located in international tourist locations.

Revenue in the Heritage Brands business fell 13% to $375 million year to year, mainly due to weakness in the North America wholesale business and a 2% decline in comparable store sales.

Earnings: Net income in the quarter fell 13.9% to $208.9 million from $242.6 in the year-ago quarter. Earnings before interest and taxes (EBIT) decreased to $270 million, inclusive of an $8 million negative impact due to foreign currency translation, from $282 million in the prior year’s period.

Tommy Hilfiger EBIT for the quarter of $177 million was flat compared to the same period year ago. Calvin Klein EBIT increased to $123 million from $121 million a year earlier. Included in the results were costs of $3 million in connection with the restructuring associated with the strategic changes for the Calvin Klein business announced in January. The earnings increase was principally due to gross margin improvements realized in North America, partially offset by softness in Asia.

CEO’s Take: Emanuel Chirico, chairman and CEO, said: “We are pleased with our third-quarter results, which exceeded our expectations despite the difficult market environment. During the quarter, we experienced continued outperformance by our European businesses, while experiencing volatility in our businesses in North America and across China, including the impact of the ongoing protests in Hong Kong.”

“We believe the current holiday season will be very competitive and highly promotional and expect that the macroeconomic and geopolitical volatility we are experiencing globally will remain a headwind. We have great confidence in our ability to navigate this evolving consumer landscape and uncertain market environment with the underlying power of Calvin Klein and Tommy Hilfiger and our global diversified business model.”

Editor’s Note: This story was reported by FN sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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