Shares of PVH Corp. largely held their ground after the company topped Wall Street’s profit projections but turned in sales declines.
The Tommy Hilfiger- and Calvin Klein-parent’s stock rose 0.2 percent to $72.46 in trading on Thursday, leaving the company with a market capitalization of $3.3 billion.
Analysts see the company as undervalued and are waiting for chief executive officer Stefan Larsson’s PVH+ plan to have its full effect.
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Jay Sole, an analyst at UBS, has a target price of $121 on the stock, projecting a two-thirds increase.
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“PVH has the brand strength, strategy, and balance sheet to drive strong earnings growth over the long term. We forecast the company delivering” double-digit growth, said Sole, adding that the second-quarter report “increases our conviction in this view.”
The analyst offered four good signs from the quarterly update, which had sales slipping 3 percent to $2.1 billion as adjusted earnings per share tallied $3.70, well ahead of the $3.08 analysts forecast.
“The company has applied its PVH+ plan initiatives to its most important categories first,” Sole said. “We believe this has resulted in these categories becoming PVH’s best performers, including in Q2 Calvin Klein saw good strength in underwear and denim. Tommy Hilfiger is also doing well in its key areas. We believe the company is gaining confidence in its ability to target the right consumers and use its marketing and product innovations to attract them.”
He also said PVH is selling more units at full price, seeing growth in “leading indicator” channels like e-commerce and could buy back over 10 percent of its stock over the next four to six months.
Tom Nikic, an analyst at Needham, said the PVH story remains “noisy” with “more volatility in the business than we’ve been seeing from other global apparel brands — Ralph Lauren Corp., Levi Strauss & Co., etc.”
“That said, the stock is trading at just a 6-times price-to-earnings ratio, which we think is an overly punitive multiple, and skews risk/reward favorably if some headwinds flip to tailwinds — e.g. if Europe, the Middle East and Africa trends improve.”
On a conference going over results with analysts, Larsson said: “Calvin Klein and Tommy Hilfiger revenues were in line with expectations with consistent year-over-year revenue performance, excluding the impacts of wholesale shipment timing. We continue to drive momentum in our direct-to-consumer business, led by growth in both Asia-Pacific and Americas, while the wholesale business was impacted by the tough macro environment in Europe.
“We beat our guidance on all elements of profitability,” he said. “Importantly, our gross margins, excluding tariff refunds, improved year-over-year and were above expectations. We continue to lean into our strong cost discipline while remaining committed to a balanced approach to investments that prioritize brand building in support of the PVH+ plan.”