- Angela Gonzalez-Rodriguez |
New York - Calvin Klein owner, PVH Corp (PVH), delivered better-than-expected second-quarter fiscal 2019 results, wherein both the top and bottom line surpassed analysts’ consensus.
As highlighted by Zacks, the company delivered 21st straight quarter of earnings beat. However, quarterly results were hurt by weakening traffic in North America and China. Ongoing protests in Hong Kong resulted in a higher promotional environment, which dented revenue and earnings per share (EPS), explained the company in a call with analysts. Consequently, management trimmed its revenue and EPS outlook for fiscal 2019. Other factor argued by PVH for this revised forecast included the anticipations of a volatile macro and retail landscape, and ongoing trade tensions.
Many retailers have detailed how they’re negotiating with vendors and others across the supply chain as well as cutting costs to keep prices from rising, reports CNBC. However, as the trade war wears on, the risk of price increases is mounting.
Trade wars to take an impact on PVH’s earnings per share in 2020
PVH lowered guidance implies an 8.8 percent decline in EBIT dollars vs. previous guidance for 3.6 percent growth. A large portion of this is due to the company’s exposure to the deteriorating wholesale and outlet channels, Cowen’s analyst John Kernan said. “Given rapidly deteriorating wholesale conditions and increasing trade tensions, we believe EBIT dollars will decline once again in FY20,” the analyst said.
On a related note, analysts at Zacks Equity Research currently rate the stock as ‘hold’, remaining optimistic about the retailer’s ”diversified business model and brand strength.” Similarly, Kernan has updated his rating to ‘market perform’ and lowered the price target from 95 to 80 dollars. The analyst said the investor focus needs to shift to free cash flow.
Cowen’s analyst said he expects consensus EPS estimates to take a 12 percent to 15 percent cut heading into 2020. “The sell-side is overly focused on ‘adjusted EPS’; we need more clarity on sustainable free cash flow (with inventory turn at all-time lows) before becoming more constructive,” he said in a Thursday note.
Thus, tariffs could cost PVH anywhere from 60 cents to 1.20 dollars in EPS next year, "with further pressure coming in international markets," according to Cowen.
Image: #mycalvins campaign, Calvin Klein official website