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PVH Expects Heritage Brands to Show Improvement in 2H16

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Evaluating the 2Q16 performance of PVH’s Heritage Business

PVH Corporation’s (PVH) Heritage Brands segment is its oldest segment. The segment, which includes brands such as Van Heusen, ARROW, Izod, Speedo, Warner’s, and Olga, accounted for 18% of the company’s revenue in 2Q16.

Revenue from the Heritage Brands business fell by 14% YoY (year-over-year) due to the ongoing impact of PVH’s rationalization initiatives for the segment. These initiatives included PVH’s exit from the Izod retail business and the discontinuation of several licensed product lines within the dress furnishing business.

Additionally, a shift in the timing of the company’s wholesale shipments to 3Q16 from 2Q16 affected the Heritage Brands business.

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Management is positive about Heritage Brands

PVH’s management expects the Heritage Brands business to show improvement in 2H16. Emanuel Chirico, chair and CEO of PVH, said during the company’s 2Q16 call, “Our Heritage businesses continue to track positively against our full-year 2016 financial plan.”

Chirico continued, “We are very well positioned in these businesses. Inventories are very clean and our sales orders at wholesale are very healthy. We believe we are poised to post a significant earnings turnaround in the second half of the year.”

Profitability

PVH’s earnings before interest and tax (EBIT) stood at $12 million on a GAAP (generally accepted accounting principles) basis in 2Q16 compared to $26 million in 2Q15. The fall was driven by a fall in its revenue and the deleveraging of its expenses.

ETF investors seeking to add exposure to PVH can consider the First Trust Consumer Discretionary Alpha DEX ETF (FXD), which invests 1.5% of its portfolio in PVH. FXD also invests 1.2%, 0.50%, and 0.52% of its holdings, respectively, in Ralph Lauren (RL), Coach (COH), and Michael Kors (KORS).

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