PVH Corporation and Grupo Axo Close Their Joint Venture

PVH Corporation (PVH) has a market cap of $8.7 billion. It rose 1.9% and closed at $107.99 per share on December 1, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.94%, 1.4%, and 46.9%, respectively, on the same day. PVH is trading 0.33% above its 20-day moving average, 0.58% below its 50-day moving average, and 9.3% above its 200-day moving average.

The Vanguard Large-Cap ETF (VV) invests 0.04% of its holdings in PVH. VV’s YTD price movement was 9.2% on December 1.

The market caps of PVH’s competitors are as follows:

• VF Corporation (VFC) – $23.1 billion
• Ralph Lauren (RL) – $8.6 billion
• Michael Kors Holdings (KORS) – $7.6 billion

In a press release on December 2, 2016, PVH reported, “PVH Corp. (PVH) and Grupo Axo announced today the closing of its previously announced agreement to form a joint venture that now licenses from wholly owned subsidiaries of PVH the rights to operate and manage the distribution of Calvin Klein, Tommy Hilfiger, Warner’s, Olga and Speedo brand products in Mexico. The joint venture was formed by merging PVH México, S.A. de C.V., a wholly owned subsidiary of PVH and the operator of its Calvin Klein and Heritage Brands businesses in Mexico, with Baseco, S.A. de C.V., a wholly owned subsidiary of Grupo Axo and a distributor in Mexico of PVH’s Tommy Hilfiger brand products.”

The reported also said, “Additionally, the newly formed joint venture also has the license to operate Tommy Hilfiger footwear, as the license agreement with a third party was recently assigned to Baseco.”

PVH reported 3Q16 total revenues of $2.24 billion—a rise of 3.7% compared to total revenues of $2.16 billion in 3Q15. Revenues of its Calvin Klein and Tommy Hilfiger segments rose 9.5% and 4.5%, respectively. Revenues of its Heritage Brands segment fell 8.0% in 3Q16—compared to 3Q15.

The company’s gross profit margin expanded by 220 basis points and its EBIT[1. earnings before interest and taxes] margin narrowed by 290 basis points in 3Q16—compared to 3Q15.

Its net income and EPS (earnings per share) fell to $126.2 million and $1.56, respectively, in 3Q16—compared to $221.9 million and $2.67, respectively, in 3Q15. It reported non-GAAP EPS of $2.60 in 3Q16—a fall of 2.3% compared to 3Q15.

PVH’s cash and cash equivalents rose 79.1% and its inventories fell 5.5% during 3Q16 and 4Q15.

PVH made the following projections for fiscal 2016:

• PVH projects revenue growth of ~2% based on a GAAP (generally accepted accounting priniciples) basis and ~3% on a constant currency basis. It projects revenue growth of its Calvin Klein, Tommy Hilfiger, and Heritage Brands businesses of 6%, 4%, and -9%, respectively, on a GAAP basis.
• PVH projects net interest expense of ~$117 million.
• The company expects non-GAAP EPS of $6.70–$6.75, which includes the negative impact of foreign currency exchange rates of ~$1.65 per share.

PVH made the following projections for 4Q16:

• revenue growth of -1%–1% on a constant currency basis
• net interest expense of $31 million
• non-GAAP EPS of $1.13–$1.18, which includes the negative impact of foreign currency exchange rates of $0.23 per share

In the next part of this series, we’ll discuss Archer Daniels Midland (ADM).