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Currency Headwinds Pressure PVH’s Fiscal 4Q15 Profitability, Margins

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May. 26 2016, Updated 9:07 a.m. ET

A look at PVH Corp.’s profitability and margins

PVH Corp. (PVH) recorded earnings per share (or EPS) of $1.52 in fiscal 4Q15, including a negative impact of $0.36 related to foreign currency exchange rate changes compared to the previous year. The company registered an earnings decline of about 14% per share in fiscal 4Q15 compared to fiscal 4Q14.

However, on a constant currency basis, PVH’s EPS increased by 7% compared to fiscal 4Q14.

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Key profitability drivers in fiscal 4Q15

PVH Corp.’s (PVH) earnings before interest and taxes (or EBIT) increased by 7% on a constant currency basis in fiscal 4Q15, driven by:

  • a 31% increase in earnings of the Calvin Klein business due to higher operating margins in Europe
  • an 11% increase in earnings of the Heritage Brands business, mainly due to shutting down the loss-generating Izod retail business operated by the company
  • increases that were partly offset by an 11% earnings decline in the Tommy Hilfiger business on a constant currency basis due to the weakness in its North America business

Currency headwinds prove costly for the company

PVH Corp.’s overall profitability and margins were negatively impacted by exchange rate changes. The company’s EBIT declined by 10% YoY to $182 million in fiscal 4Q15 after including the impact of foreign currency exchange rates.

Tommy Hilfiger was the most impacted segment and registered a 29% YoY decline in total revenue after considering the currency impact. The Calvin Klein segment, however, continued to be strong and recorded revenue growth of 19% even after including the currency impact.

Investors who would like exposure to PVH can consider pooled investment vehicles like the Consumer Discretionary Select Sector SPDR ETF (XLY), which invests 0.31% of its portfolio in PVH.

Comparing profitability to peers

PVH Corp.’s (PVH) EBIT margin, after including the negative impact of exchange rates, stood at 8.3% during the quarter. PVH’s EBIT margin is lower than most of its peers. Hanesbrands (HBI) reported an operating margin of 10% for the quarter ended April 2, 2016. VF Corp. (VFC) reported an operating margin of 11.8% for the quarter ended March 31, 2016.

Michael Kors (KORS) displayed an even higher margin of 29.2% for the quarter ended December 26, 2015, and Coach’s (COH) margin was 13% for the quarter ended March 26, 2016.

Please read the next section to learn about the company’s guidance for fiscal 1Q16.

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