PVH (PVH, Financial), the parent company of Calvin Klein and Tommy Hilfiger, is facing challenges after its Q2 earnings report. Despite a sizable Q2 EPS beat and a raised FY25 EPS guidance, the earnings upside was primarily due to a one-time item, not its regular business operations.
- PVH's Q2 EPS of $3.01 included a $0.55 tax benefit from a favorable audit settlement in an international jurisdiction. Initially, PVH guided for Q2 EPS of approximately $2.25. Consequently, PVH raised its FY25 EPS guidance by the same $0.55 amount, now projecting $11.55-$11.80, up from $11.00-$11.25.
- Excluding tax benefits, PVH's performance was lackluster, with a downside Q3 outlook. In North America, combined revenue for Tommy Hilfiger and Calvin Klein grew by just 1%, down from 3% last quarter. The wholesale business saw modest growth, but DTC revenue decreased by low-single digits. The company attributed a 4% drop in owned and operated stores to recent consumer softness.
- In Asia Pacific, including China and Australia, a difficult consumer environment led to a 4% decrease in PVH's international business. However, this decline is partly intentional as PVH implements a sales reduction initiative in Europe to focus on higher-margin sales. As a result, PVH's non-GAAP gross margin improved by 250 bps year-over-year to 60.1%.
- Despite margin improvements, anticipated sales declines cast a shadow. For Q3, PVH forecasts a 6-7% revenue drop to $2.05-$2.07 billion, missing expectations. EPS guidance of $2.50 also fell short.
PVH's Q2 results and guidance follow a trend of disappointing performances in the apparel industry, including from Levi's (LEVI, Financial), NIKE (NKE, Financial), and G-III (GIII, Financial). While PVH is making efforts to reduce inventory in Europe and focus on higher-margin sales, the overall business climate remains challenging.
