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Why Did 1Q16 Revenue Decline for PVH’s Heritage Brand?

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Jun. 9 2016, Updated 12:05 a.m. ET

Heritage Brands overview

The Heritage Brands segment is PVH’s (PVH) oldest segment. It includes brands such as Van Heusen, Arrow, IZOD, Speedo, Warner’s, and Olga. The company closed its IZOD retail stores business in fiscal 2015.

The company also licenses certain brands such as DKNY, Kenneth Cole, Geoffrey Beene, Michael Kors, Chaps, and U.S. Polo Assn from licensors Louis Vuitton, Kenneth Cole Productions, Geoffrey Beene, Michael Kors (KORS), and Ralph Lauren (RL).

Heritage Brands accounted for ~21% of PVH’s top line and ~9.7% of its operating margin in fiscal 2015. PVH reports Heritage Brands under two segments:

  • Heritage Brands Wholesale
  • Heritage Brands Retail
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Performance of Heritage Brands

In 1Q16, Heritage Brands continued to contract. Total sales declined by 12% after falling 4% in fiscal 2015. The ongoing rationalization for declining sales includes the exit from the IZOD retail business and the discontinuation of several licensed product lines in the dress furnishings business. The Van Heusen business, however, continued to remain strong, posting a 12% increase in comparable store sales in 1Q16.

EBIT (earnings before interest and taxes) for 1Q16 stood at $33 million on a non-GAAP basis and $30 million on a GAAP basis. This compares to $34 million in 1Q15. The decline in EBIT was a result of a revenue decline, which resulted in a deleveraging of expenses compared to 1Q15.

Investors who want exposure to PVH can consider the First Trust Consumer Discretionary AlphaDEX ETF (FXD), which invests 1.3% of its portfolio in PVH. FXD also invests in other apparel companies such as Ralph Lauren (RL), Coach (COH), and Hanesbrands (HBI). FXD invests 0.91%, 0.63%, and 0.50% of its holding in Ralph Lauren, Coach, and Hanesbrands, respectively.

In the next part of the series, we’ll look at PVH’s guidance for fiscal 2016.

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