News

[Note: PVH FY’23 ended in Feb 2024]

PVH Corp’s stock (NYSE: PVH), formerly Phillips-Van Heusen Corporation, owns brands such as Van Heusen, Tommy Hilfiger, and Calvin Klein, currently trades at $107 per share, around 13% below its level of $123 seen on November 16, 2021 (pre-inflation shock high), and has the potential for gains. The company’s Q1 revenue was down 10% on a year-over-year basis (to just under $2 billion), driven by weakness particularly in wholesale, Europe, and the Tommy Hilfiger business. About 3% of the overall revenue decrease was generated by the sale of a group of small brands (Warner’s, Olga, and True&Co) in late 2023. The company also announced the removal of its Tommy Hilfiger Global CEO and PVH Europe President, indicating that some of the problems might be generated internally. On the margin side, a disciplined pricing strategy has allowed the company to protect operating income despite falling sales. Its adjusted earnings came in 14% higher y-o-y to $2.45 per share.

For the entirety of this year, management is forecasting a 6-7% decline in revenues, with operating margins of 10.5% (flat compared to last year). It also forecast EPS of $11 to $11.25, which is slightly better than the $10.68 it reported in 2023. Looking ahead, the company is still expecting challenges in Europe and wholesale. Management noted that the Fall 2024 order book was down, criticizing wholesale cautiousness. The company expects an improvement by the Spring 2025 collection, which should impact revenues in late 2024 and early 2025. PVH stock is down almost 13% year-to-date. In comparison, PVH’s peer Tapestry (NYSE: TPR) stock is down 1% since the beginning of this year.

PVH stock has witnessed gains of 10% from levels of $95 in early January 2021 to around $107 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in PVH stock has been far from consistent. Returns for the stock were 14% in 2021, -34% in 2022, and 73% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that PVH underperformed the S&P in 2021 and 2022.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PVH face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Returning to the pre-inflation shock level means that PVH will have to gain about 13% from here. While it has the potential to recover to those levels, we estimate PVH Valuation to be around $110 per share, almost 3% higher than the current market price. Our detailed analysis of PVH’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
• April 2021: Inflation rates cross 4% and increase rapidly
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how PVH stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

PVH and S&P 500 Performance During 2007-08 Crisis

PVH stock declined from nearly $54 in October 2007 (pre-crisis peak) to around $17 in March 2009 (as the markets bottomed out), implying that PVH stock lost almost 69% of its pre-crisis value. It recovered from the 2008 crisis to levels of around $41 in early 2010, rising roughly 146% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

PVH’s Fundamentals Over Recent Years

PVH revenues grew from around $7.1 billion in 2021 to about $9.2 billion in 2022 – and slightly declined to $9.0 billion in 2023. Its earnings per share increased from around -$15.96 in 2021 to $13.68 in 2022, before falling to $3.09 in 2023. Growing inflation has curbed consumer spending. The company looks to stabilize in a difficult macro-operating environment.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe PVH stock has the potential for strong gains once fears of a potential recession are allayed. That said, the pressure on the company’s balance sheet remains a significant risk factor to realizing these gains. As of Q1 2024, PVH had $2.15 billion in long-term debts against only $346 million in cash. This level of leverage is high for an apparel company because apparel is highly non-discretionary and suffers from operational leverage. The company mentioned a refinancing on the Q1earnings call but without mentioning the terms.

It is helpful to see how its peers stack up. PVH Peers shows how PVH stock compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

Returns	Jul 2024 MTD [1]	2024 YTD [1]	2017-24 Total [2]
PVH Return	1%	-13%	18%
S&P 500 Return	3%	18%	152%
Trefis Reinforced Value Portfolio	1%	8%	665%

[1] Returns as of 7/11/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.