Analyst Note| David Swartz |
Like others in the apparel industry, no-moat PVH reported stellar sales and profit margins in 2021’s second quarter. Unlike most others, however, its European operations outperformed its North American business, which continues to be negatively affected by low international tourism (typically 30%-40% of North America sales). We think this bodes well for PVH in the long term as its earnings potential should improve when its North America sales recover and its strategic initiatives (including a faster supply chain, fewer products, and higher pricing) take hold. For now, we intend to lift our 2021 adjusted EPS estimate of $6.84 by roughly 25% to reflect the results and company guidance of $8.50. This change should result in a mid-single-digit percentage increase in our $117 fair value estimate, which is close to the current share price after today’s low-teens percentage move.