How Phillips-Van Heusen can Dress up Your Portfolio!
Nidhika is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Phillips-Van Heusen (NYSE: PVH), one of the largest global branded lifestyle apparel companies in the world, smashed the market estimates by posting its first quarter (Q1) results for fiscal year (FY) 2013 (Revenue was up by 34%; Adjusted EPS improved by 44%). The key drivers were robust sales performance across all segments, improved margins and the positives of the Warnaco Acquisition.
Phillips-Van Heusen designs and markets branded dress shirts, sportswear, hosiery, accessories like watches, footwear, leather goods, etc. for men, women and children, under various iconic brand names like Tommy Hilfiger, Calvin Klein (CK), DKNY, and Arrow. The products are distributed and sold through department stores, wholesale clients and 720 outlet stores worldwide, operated by PVH under various brand names.
Numbers & financials
PVH reported Q1 FY2013 revenue of $1.91 billion (up 34% year over year) and Q1 FY2013 EPS of ($0.25) (Q1 FY2012: $1.30). (Note: Excluding the one-time items, the EPS for PVH actually rose by 44% to $1.91).
The company reports its results in three segments, segregated on the basis of brands viz. Calvin Klein, Tommy Hilfiger & Heritage Brands (incl. all other brands). All three segments saw boost in segment revenues led by Calvin Klein, which was up by a massive 132% to $608 million (due to Warnaco Acquisition). It was followed by Tommy Hilfiger & Heritage Brands, which were up by 5.3% and 24.3% respectively. Though PVH’s exit from the low margin “Izod” & “Timberland” business cost a negative impact of 7% in Heritage Brand’s segment revenues, it looked strategically sensible as it resulted in better overall operating margins. On an overall basis, PVH expanded its operating margin by 120 bps. Geographically, North America led the growth in revenues, driven by a robust increase in retail & wholesale sales as well as square foot expansion.
Acquisition of Warnaco
In Feb, 2013, PVH completed the acquisition of The Warnaco Group, for a consideration of $3.14 billion. This strategic move can be seen as a gold point for the future, as PVH now gets ownership of a broader line of intimate apparel, sportswear and swimwear products worldwide (which includes popular brands like Calvin Klein, Speedo and Ogla). The biggest impact of the acquisition can be sensed in Calvin Klein, as prior to acquisition, Warnaco was the largest licensee for the brand CK. Now, PVH has got absolute ownership on the brand. The positive impact of the above has been established by the revenue growth of the Calvin Klein segment.
The key competition is offered to PVH by Ralph Lauren (NYSE: RL) and VF Corp (NYSE: VFC). RL is a major player in the Apparel Clothing Industry, with leading brands like Polo by Ralph Lauren, Ralph Lauren Collection, Black Label, Blue Label & RLX. RL has recently declared its Q4 FY 2012 results, posting an EPS growth of 37% to $1.37. VFC is an American based apparel and footwear company, which owns key brands like The North Face, Vans, and Timberland. As per the most recent quarter release, the company witnessed its revenues increase by 2.2% and EPS by 26.2%.
At the current market prices, PVH Corp has a PE Ratio of 28.99. On the similar lines, RL has a PE Ratio of 21.14 and VFC has a PE Ratio of 18.23. Though, PVH, currently trading at $ 121, has a higher PE Ratio, it still has the pedigree to trade above $ 130 by the end of FY 2013.
PVH’s range of iconic brands & products offered by it, and the geographical area it manages to cover easily makes it one of the largest lifestyle product companies in the world. It stands amidst high competition, still managing to stand out. Its gold points can be found shining in many areas viz. robust revenue growth, expanding margins, attractive valuations, etc. Its strategy seems to be on the right track in the form of an acquisition of Warnaco and exit from low volume Izod & Timberland. According to its yearly view, the company expects revenues of $8.2 billion and EPS of $7 for the FY 2013. Capital Expenditure plans outlay the growth trajectories viewed by the company in the form of growing & developing economies. Amidst the scenario, PVH seems to be a good investment.
Nidhika Goyal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!