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Tommy Hilfiger Continues to Show Strength in 2Q16

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Aug. 29 2016, Updated 12:04 p.m. ET

Evaluating Tommy Hilfiger’s performance

Acquired by PVH Corporation (PVH) in 2010, Tommy Hilfiger currently accounts for more than 40% of the company’s total sales.

Tommy’s business came under pressure in 2015 as the brand reported a ~6% fall in its total sales. Business returned to positive growth territory in 1Q16, however, with ~3% sales growth on a GAAP (generally accepted accounting principles) basis.

The brand’s second quarter was even better. Its revenue rose by 6% YoY (year-over-year) to $860 million on a GAAP basis. On a constant currency basis, the rise was about 7%. The brand’s performance in 2Q16 was in line with PVH’s guidance for the quarter.

Tommy Hilfiger has performed better than its competitors Ralph Lauren (RL) and VF Corporation (VFC). While VFC saw modest sales growth of 0.8%, RL reported a sales fall of 4.1% in its last-reported quarter.

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What were the key revenue drivers?

Tommy Hilfiger’s international business rose by 10% in 2Q16 compared to 2Q15, driven by continued strength in Europe. Its retail business in Europe was particularly strong, with comparable store sales rising by 8% during the quarter.

As discussed in the previous section, the US retail business has been under pressure. Tommy’s North American comparable store sales fell by 7% YoY in 2Q16, driven by continued weakness in traffic and consumer spending trends in its US stores in international tourist locations. Its wholesale business, however, continued to show strength.

Profitability

Tommy Hilfiger’s EBIT (earnings before interest and tax) fell by 22% YoY to $76 million on a GAAP basis, primarily due to the costs incurred on the TH China acquisition and the licensing of the Tommy Hilfiger womenswear wholesale business to G-III Apparel (GIII) in the United States and Canada.

ETF investors seeking to add exposure to PVH can consider the iShares Morningstar Mid-Cap ETF (JKG), which invests 0.52% of its portfolio in PVH.

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