Evaluating Calvin Klein’s performance
In 4Q16, Calvin Klein accounted for 38% of PVH Corp’s (PVH) 4Q16 top line. The brand reported a 1.4% YoY (year-over-year) decline in sales to $795 million during the quarter, outperforming the management’s forecast of a 5% decline.
Competitor Ralph Lauren (RL), which declared results in early February, saw its sales plunge 12% YoY, marking the seventh-straight quarterly sales decline for the company. Remember, softness in sales is a result of declining traffic and a decrease in average transaction size as well as inventory tightening.
Calvin Klein’s revenue drivers
Calvin Klein’s North America sales fell 11% YoY in 4Q16. The majority of this decline came from its Mexico deconsolidation ($25 million), a 2% decline in comps, and stronger prior period comparisons, given the one-time sales gains in 4Q15 that resulted from the expansion of the wholesale underwear business.
Although Calvin Klein North America sales dropped during 4Q16, the brand reported healthy growth in its wholesale channel and witnessed a stabilization in international tourist traffic in the retail channel, both of which had been a reason for concern for the company for some time.
International revenues rose 11% YoY, driven by strong performances in Europe and China. Currency headwinds continued to taper the top line, but excluding currency effects, Calvin Klein international sales rose 14%. The retail business was particularly strong, with comps growing 6% during the quarter.
Calvin Klein reported a ~32% decline in EBIT (earnings before interest and taxes) to $69 million on a GAAP (generally accepted accounting principles) basis, driven by a rise in planned marketing expenses and additional costs associated with Mexico joint venture formation.
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