Solid 1st-Quarter Sales Growth for PVH
We're not planning much change to our fair value estimate for the narrow-moat firm.
We don't expect a meaningful change to our $144 fair value estimate, other than for the time value of money, after PVH (PVH) reported solid first-quarter sales growth of 16% (versus our 15% forecast) with gross margins expanding 150 basis points to 55.8% partly due to less promotional activity, supporting its brand advantage, the source of its narrow moat.
The Tommy Hilfiger (44% of sales) and Calvin Klein (38%) brands continued to perform well, posting revenue growth of 21% (versus our 19% forecast) and 18% (17%), respectively. Once again, growth was driven by strength in international markets, where both brands saw a 25% sales lift. Results in North America were aided by a rebound in travel to the States, with Tommy posting 13% revenue growth, an acceleration from 5% last quarter (both periods comped against similar prior year declines). Equally impressive was Calvin Klein's 10% North American sales growth, a deceleration from 13.5% last quarter, but against a 9.5% tougher comparison.
PVH's bottom-line results were also healthy, with gross margin expansion driven by less promotion, international strength, and the timing benefit of the Chinese New Year. Mitigating this strength will be ongoing brand investment, which results in PVH maintaining its 2018 guidance for a 30-basis-point increase in operating margin (versus our estimate for a 20-basis-point improvement) to around 10%. We plan to maintain our forecast for 10.3% operating margins on average the next five years.
PVH adjusted its 2018 revenue growth outlook to around 6% from 7%, driven by slight reductions in Tommy Hilfiger (to 7% from 9%) and Calvin Klein (to 8% from 9%) sales growth. This strikes us as overly conservative, given the continued strength reported this past quarter. As a result, we don't expect much change to our 2018 consolidated sales growth forecast of 7%, or our 9% and 8% respective estimates for the Tommy Hilfiger and Calvin Klein brands in 2018.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.