PVH Corp. (PVH) Initiating Coverage Report

PVH

1. Initiation of Coverage
March 27, 2019


Lead Analysts:
Sarah Merzen – [email protected]
Christian Springer – [email protected]
Associate Analysts:
Sahil Ghayal – [email protected]
Lana Mansour – [email protected]
Austin Kane – [email protected]






COMPANY OVERVIEW
PVH Corporation is a New York-based company that
designs and sells apparel and footwear globally. PVH has a
history of over 135 years and is considered one of the
largest branded apparel companies in the world. The
company operates in over 40 countries with over 36,000
associates and generated $8.9B in revenues in FY’18. It is
the parent company of global brands such as Calvin Klein,
Tommy Hilfiger, and Van Heusen. Along with these brand
names, PVH also has licenses for third-party brands, such
as Michael Kors, DKNY, Kenneth Cole, and others. PVH
has growth strategies including innovation in product
offering, design and new categories and increasing
consumer engagement by online and in-store experiences.
PVH’s fiscal year ends on March 28, 2019.
INVESTMENT THESIS
PVH Corp. is unfairly undervalued 36.6% to its one-year
median P/E of 15.36x, as investors are skeptical about
PVH’s long term growth opportunities in Calvin Klein.
Shares dropped 9.6% on August 30
th
after CK announced
plans for closing its luxury business that had low
performance and compressed the company’s margins in
past years. Moreover, CK creative director Raf Simons,
who was running the CK 205W39NYC Collection, stepped
down from the company. This decision was after PVH’s
CEO, stated his disappointment with the weak ROI from
the highly-anticipated collection. This shut down came
after an increase in creative and marketing expenses and the
shutdown of the unprofitable NYC store in February. In
3Q’18, EBIT was $121mm compared to the prior period
of $142mm representing a 14.8% decline caused by the
weak performance. We believe the company was unjustly
undervalued as investors did not consider the
management’s quick remediation to renovate CK and
focusing on its profitable existing categories and
overlooked high-performing segments within the company
such as Tommy Hilfiger. Additionally, the company
recently announced its official plans to acquire Gazal, an
Australian apparel company that we believe will help
further diversify the company’s international exposure.
These factors elevate PVH Corp.’s value above current
sentiment, and once in action, will send shares back to the
target price of $139.16, imposing a return of 36.6%.

CONSUMER: DESIGNER APPAREL





Key Statistics (in M, except per share data)
Share Price $110.10 52-Week Low $109.36
Exp. Return 36.6% 52-Week High $111.20
Shares O/S 77.1 Div. Yield 0.13%
Market Cap $8338.4 Enterprise Value $11,095.4





Earnings (Adj.) / Revenue Surprise History
Quarters EPS Revenue Δ Price
4Q’17 7.78% 6.37% 5.15%
1Q’18 4.94% 1.31% 2.89%
2Q’18 4.06% 2.09% (9.57%)
3Q’18 2.13% (0.37%) 0.67%

Earnings Projections (Adj.)
Q1 Q2 Q3 Q4 FY
2016A $1.52 $1.55 $2.89 $1.72 $7.12
2017A $1.57 $1.47 $2.21 $1.06 $6.39
2018A $1.85 $1.59 $2.95 $1.67 $7.72
2019E $2.36 $2.12 $3.20 $1.74 $9.49



Source: Bloomberg, FactSet

The Fox Fund does and seeks to do business with companies covered in
its research reports. Thus, investors should be aware that the fund may
have a conflict of interest that could affect the objectivity of this report.
All prices are current as of the end of previous trading session from date
on which report was issued.
PVH Corp.
Exchange: NYSE | Ticker: PVH | Target Price: $154.37

2. Spring 2019


Consumer: Designer Apparel Page 2
SEGMENT OVERVIEW
PVH delineates revenue through six individual segments
geographically and by means of distribution. The Calvin Klein and
Tommy Hilfiger segments are separated geographically while
Heritage is divided by wholesale and retail distribution. The global
lifestyle brands, Calvin Klein and Tommy Hilfiger generated
82.6% of FY’18 revenue, and internationally encompass 45.8% of
PVH’s revenue. In FY’17, global retail sales under Calvin Klein,
Tommy Hilfiger, and Heritage were $9.1B, $7.4B, and $3.4B
respectively.
Tommy Hilfiger International (26.1% of FY’18 Revenue):
The Tommy Hilfiger International segment includes apparel, sportswear, footwear, bags, accessories, eyewear, and
fragrances sold under the Tommy Hilfiger brand globally excluding North America. This segment acquired TH China,
operating directly in China’s high-growth market, and it consists of margins through wholesale, retail, and licensing
distribution channels.
Calvin Klein International (19.7% of FY’18 Revenue):
The Calvin Klein International segment includes apparel and accessories sold under the Calvin Klein designer brands
globally and its margins through wholesale, retail, and licensing distribution channels. Internationally, Calvin Klein partakes
in joint ventures with Gazal Australian Corporation Limited that it will officially acquire in the next quarter and Arvind
Brand in India.
Calvin Klein North America (19.1% of FY’18 Revenue):
The Calvin Klein North America segment includes apparel and accessories sold under the Calvin Klein designer brands
and its margins through wholesale, retail, and licensing distribution channels in the United States, Canada, and Mexico. In
the North American region, this segment invested into a joint venture with Grupo Axo in Mexico (PVH Mexico) and
possesses 49% economic interest as of November 30, 2016.
Tommy Hilfiger North America (17.6% of FY’18 Revenue):
The Tommy Hilfiger North America segment includes apparel, sportswear, footwear, bags, accessories, eyewear, and
fragrances sold under the Tommy Hilfiger brand in the United States, Canada, and Mexico. This segment has a licensing
agreement with G-III Apparel Group, Ltd. which resulted in a discontinuation of Tommy Hilfiger North America
womenswear wholesale business in 4Q’16 and is invested into a joint venture with S.A.P.I de C.V. (a subsidiary of Grupo
Axo) in Mexico.
Heritage Brand Wholesale (14.6% of FY’18 Revenue):
The Heritage Brand Wholesale segment includes dress shirts, neckwear, sportswear, swimwear, footwear, and underwear
for men, women, and children. This segment is distributed through the chain, department, and specialty stores and by
means of digital commerce. It is invested in a joint venture consisting of Gazal Corporation Limited in Australia and
S.A.P.I de C.V. (a subsidiary of Grupo Axo) in Mexico. In FY’17, the first, second, and sixth bestselling woven sports
shirts were created by IZOD, Van Heusen, and ARROW.
Heritage Brands Retail (2.9% of FY’18 Revenue):
The Heritage Brand Retail segment includes apparel, dress shirts, neckwear, sportswear, swimwear, footwear, and
underwear through retail store operations in the United States and Canada. Half of the stores function under the Van
Heusen name and consist of Van Heusen products with a limited selection of products under IZOD Golf, Warner, and
Speedo.

3. Spring 2019


Consumer: Designer Apparel Page 3
INDUSTRY OVERVIEW
Retail industry:
The retail sector has been impaired by the sector-wide move toward technology and Direct-to-Consumer (DTC) sales. In
developed markets, a shift in consumer trends have caused the erosion of mass brands as consumers seek personalization
and a special relationship. Consumer prefrence have shifted to favor premiumization and the "Trade Down to Trade Up"
trend – in which technology gives consumers more information and more choices, transforming shopping into a more
personal and interest-based process for consumers. This provokes brands to innovate and improve efficiencies in order
to offer higher quality at lower prices. Moreover, companies will have to adapt and expand within a few key categories to
remain ahead of the competition and maintain earnings. Brands are focusing on the creation of meaningful experience for
the customer within the store, as foot traffic numbers are down across the board. Additionally, there needs to be increased
customization in both the online and in-store channels. The importance of personalization in retail shows that businesses
that are currently focusing on online user experience, and who are also able to quantify the improvement, are seeing an
increase in sales of 19.0% on average, as stated by a report from KPMG. PVH has addressed these trends by creating a
social consensus of its brands with a persuasive advertising campaign and is well-positioned to take advantage of the ever-
evolving landscape in retail. In addition, the changes in Calvin Klein (CK)’s high-end product lines will improve the image
of all Calvin Klein and Tommy Hilfiger (TH) and brands which should prove profitable when consumers are looking for
premium, high-quality products; as the all-new CK Performance line may tap into the accelerating athleisure segment also.
The Fashion Designer industry:
As the economy strengthens, the fashion industry trends upwards by increased consumer confidence which increased
from 91.2 index points in January to 97.8 points in March. The fashion industry utilizes innovative techniques to sell its
products and to attract the younger population. Since the clothing stores are the largest source of revenue for the fashion
industry, any change in demand for the products in stores alters demand at the design level. Fast fashion, which is known
as lower priced clothing with quick turnover, has increased demand for the fashion industry’s services. Cumulative data
compiled within The Fashion and Apparel Industry Report gives a bearish outlook with worldwide revenue expected to rise
from $481.2B in 2018 to $712.9B by 2022; in 2019, the revenue is expected to increase by 2.3% to $2.4B. To be able to
maintain this growth, designers must continue focusing on new business models and processes to attract mass appeal. We
believe PVH’s new plan to expand their brand through plant renovations and innovation in product design and offering
will follow these trends and attract consumers.
Consumer Spending:
The fashion industry is known to be dependent on per capita disposable income. This determines whether consumers
have the amount of money to spend on the products designed by the industry. It is expected to increase in 2019. Comparing
to these expectations, the U.S. disposable income has increased by 1.4% from December 2017 to December 2018.
Consumers focus on a balance of three aspects of clothing, which are value, quality, and style. For an extended amount of
time, consumers were always attracted to style, but were resistant to the high price of the pieces. Over the past five years,
the fashion industry has started to close the gap between style and value to attract a mass number of consumers. PVH is
known to have a respectable balance of these three aspects, resulting in remaining stable with the economy and consumer
demands. Demand from these clothing stores are critical to be successful in the fashion industry. The demand from these
stores is expected to increase an annualized 0.6% due to increased confidence and disposable income of the consumers.
This increased demand enables designers to acquire growing amounts of profitable work. Along with increased consumer
confidence and disposable income, social media and mobile applications also have a contribution to the industry growth.
Fashion clothing design takes up 44.7% of the products and services segmentation. 2.8% is textile design. 26.3% footwear
design. Fashion designer’s industry has trended upward since the economy has strengthened. We believe as consumers’
disposable income increases, the outlook for apparel designer companies, including PVH, will be promising given that
both the U.S and Australia’s disposable income has been increasing in the past years.

4. Spring 2019


Consumer: Designer Apparel Page 4
UNDERVALUATION


PVH Timeline
08/30 ↓

Shares dropped by 9.6% due to slower-moving inventory signaling that PVH’s momentum may be coming
to a halt. While Tommy Hilfiger sales continue to expand by double digits in international markets, the
company’s North American businesses and Calvin Klein’s revenue growth has slowed in 2Q’18

10/10 ↓

The market-wide selloff in retail and tech by 7.3%
10/31 ↑

Moody’s positive outlook for U.S Apparel and footwear industry to 8.0% – 9.0% from 3.0% – 5.0%

11/14 ↓

U.S dollar strength lowered the estimated positive impact of foreign currency translation to $0.03/share
from $0.07/share, previously.

11/29 ↓

Weak CK luxury line performance despite strong brand health, 3Q’18 experienced softness from Retail
Price Index (RPI) from CK 205W39NYC Line. CK jeans sales were less than expected, which resulted in
stock drop by 6.8%. We believe investors overshadowed the beat and raise of earnings along with the
strong performance of TH by the CK performance.

12/04 ↓

Raf Simon, director for creativity in CK luxury business parting from PVH leaving investors concerned
about CK outlook.

12/14 ↑

CEO purchased $955,000 worth of PVH stocks. Rydin Craig Director purchased ~$99,000 on the same
day. The pair purchase generated a bullish insider insight and increase the stock price by 3.4%.

03/08 ↓

Retail stocks dropped after the U.S Labor Department data shows slow U.S job growth in February, posting
its weakest since September 2017, signaling concerns over an upcoming slowdown in U.S economic activity.
03/22 ↑

PVH stock jumped 3.2% after the company announced closing its Tommy Hilfiger store in Fifth Avenue
in an initiative to focus on millennial retail experience. PVH is planning to reshape its retail stores through
modern and digital based stores. We believe this reaction to this decision explains investors’ satisfaction by
recent management decisions for Calvin Klein and Tommy Hilfiger.

5. Spring 2019


Consumer: Designer Apparel Page 5
UNDERVALUATION
PVH is currently trading at 10.96x, representing a 36.6% discount to its one-year median P/E of 15.36x. In late FY’18,
Calvin Klein (CK) announced plans to relaunch and restructure its high-end designer collection named 205W39NYC by
the former chief creative officer Raf Simons. The plan also included closing its New York collection flagship at 654
Madison Avenue for restructuring and rebranding that was estimated to cost ~$120mm. However, the CK luxury line
appeared to be unprofitable for PVH and weighted on the company’s margins by the rise in advertising expenses and the
poor launch of a CK jeans line, sending shares down 9.6%. However, shortly after last earnings, management rectified this
misstep quickly by shutting-down the CK luxury business and changing their strategy to focus on the profitable segments
of the CK including denim and underwear. Emmanuel Chirico, PVH’s CEO, publicly rebuked the performance of Calvin
Klein in a third-quarter earnings conference call, saying that Simon’s designs were too fashion-forward for its core
consumer. The company is currently following through with its plans to clear its outdated inventory and replace the shelves
with products more shaped around consumers’ expectations.

PVH Corp’s sales momentum, especially at Calvin Klein in North American and international markets, has moderated in
recent quarters after margin pressures signaled a potential slowdown. PVH fell 9.6% after CK’s margins slightly declined
due to slower moving inventory. Investors have subsequently become anxious about CK’s long term growth considering
its additional advertising expenses weighing on gross margins in 2Q’18. As a result, Revenue estimates fell to ~7.0% in
FY’18 down from a growth forecast of ~8.0%. This is after the leadership plans to remodel its higher-end product lines
closer to its customers’ interests, demonstrating the company’s inclination to maintain a social consensus of the brand’s
image. Customers did not react spontaneously to CK’s shift from casual pieces to the exclusive image that Simons conjures,
while investors are bearish due to the high costs of restructuring the brand and poor return on its investments, which
resulted in shares dropping 6.8% on November 29
th
. Calvin Klein’s EBIT for the quarter decreased to $121mm, from
$142mm a year earlier, primarily attributable to an approximate $10mm increase in creative and marketing expenditures
compared to the prior-year period. The company also reflected gross margin pressure due to more promotional selling in
the Calvin Klein Jeans business, particularly in North America. We believe PVH stock is unjustly undervalued as investors
did not appreciate the management’s rectifying step and new strategy after the CK luxury event which raised the company’s
guidance to 7.0% from 6.0% prior. In addition, we believe investors overlooked the other segments’ performance in recent
quarters, including Tommy Hilfiger which had double-digits growth in sales. Moving forward, we see PVH reaching its
target price of $139.16 and expanding its margins through its focus on what CK is renowned of, its denim and underwear
business, along with its continuous growth in TH and Heritage Brands segments. In addition, we believe the company’s
upcoming acquisition of Gazal in the next quarters will further diversify the company’s international exposure open PVH
to new markets in Australia/New Zealand.

6. Spring 2019


Consumer: Designer Apparel Page 6
CATALYSTS & POSITIVES
CK Halo Luxury Business Shut Down:
How it started:
In late FY’18, CK planned to relaunch and restructure its high-end designer collection named 205W39NYC by the chief
creative officer Raf Simons. The plan also included closing its New York collection flagship at 654 Madison Avenue for
restructuring and rebranding that was estimated to cost ~$120mm. However, CK luxury line had already poor performance
and missed sales plan by 300 basis points from its jeans line. In addition, customers did not appreciate CK’s shift from a
casual designer to a luxury brand and investors did not accept the high costs of the restructuring brand and poor expected
return on their investments, which resulted in the stock sell-off on November 30
th
by 6.8%. Simon changed CK brand
from a casual to a luxury brand by heavy advertising campaigns featuring The Kardashians and Shawn Mendes along with
other celebrities. However, these campaigns failed to deliver expected earnings compared to their expenses which
disappointed investors and led to the stock drop. In 3Q’18, EBIT was $121mm compared with $142mm representing a
15.0% YoY decline.
Results:
After this drop, PVH’s CEO, Emanuel Chirico, stated his disappointment by the weak ROI from this CK business in
2Q’18 earnings call and announced shutting down the unprofitable luxury CK business line. This shut down came after
an increase in creative and marketing expenses and the shutdown of the unsuccessful 654 Madison Avenue store in NYC
in February. This action also came after considering the contracted margins and low performance of this luxury line.
Action:
Following the CEO comment and closure action, CK creative director Raf Simons, who was running the CK 205W39NYC
Collection, stepped down the company. Moreover, Michelle Kessler-Sanders, president of Calvin Klein 205W39NYC, will
be leaving the company in June after helping to close the luxury segment. Although this action resulted in losing executives
and workers, we believe the company’s management valued the company’s historic strategy in casual clothing and
investors’ sentiment of the company more. Moving forward, we see how these actions will result in the growth of the
company as it values its customers and investors and take their opinions into account. According to management, these
actions will also result in increasing consumers’ attachment to the brand strategy.
Plan:
Management issued a new plan to focus on existing categories including denim and underwear that earns the company
more profit and the compnay is renowned for. The company plans to rebrand and cut off the entire luxury collection in
NYC. These plans illustrate managements’ initiative to increasing consumers’ connection to CK and TH and rectify CK
poor performance in the last quarters. We believe since managmgment has identifies the issues and responded quickly,
products and marketing recovery should appear in the next quarters and bring the stock back to its fair value. In addition,
we are positive that the stock will reach our target price due to the following additional reasons:
Quarter–to–date trends have accelerated and fiscal year guidance was raised along with expected expansion in
CK margins by 75-100 basis points in 2019, following CK prior declines of 34 bps.
TH coninues to outperform
Foreing Exhange is not a meaningful impact next year.
Attractive growth story given its international brands exposure and focus on evolving its busnienss model in
conjunction with its customers.
Expected growth in CK underwear segment in Asia (0.4%) at 5.3% CAGR from 2017 to 2022, according to
Euromonitor.
On Sunday, PVH announced plans to reacquire Tommy Hilfiger licensing in Central and Southeast Asia, allowing
the company to further realize international growth opportunities, which will in return propel margins.

7. Spring 2019


Consumer: Designer Apparel Page 7
Acquisition of Gazal Australian apparel company
Based in Sydney and listed on the ASX, Gazal is a leading apparel supplier and
retailer in Australia. PVH and Gazal jointly own and manage a joint venture
(JV), PVH Brands Australia Pty Limited "PVH Brands Australia" (PVHBA),
which will come under PVH's full ownership when the acquisition of Gazal is
completed for approximately $88.2mm in the next quarter. The transaction
will increase PVH’s earnings on a GAAP basis as the company expects to
record a non-cash gain to write-up its investments in Gazal and the JV to fair
value. PVH Brands Australia licenses and operates businesses under PVH's
Calvin Klein, Tommy Hilfiger, and Van Heusen brands, as well as other licensed and Gazal-owned brand names, such as
Pierre Cardin, Bracks and Nancy Ganz. PVH commented that adjusted EBIT margins for Gazal, after current royalties to
PVH, would be double digits and above PVH Corp.’s current EBIT margins of ~10.0% while Gazal is currently at ~55.0%.
This contrast between the brand’s margins is due to the degrees of exposure the companies have in their respective regions.
Retail spending in Australia and New Zealand has grown steadily at a rate of ~5.0% in the past five years. Non-store and
commission-based retailing - including online-only retailers - has been the largest growth category in the past 10 years,
representing a rapid growth of 335.0%. According to a report by the NZHerald, the average gross margin for retail
businesses last year was 3.7%, with the clothing, footwear and personal accessories categories performing best at 7.5%.
Gazal outperforms its competitors significantly with a 5-year average gross margin of 34.3%. Retailers are operating in a
highly competitive, and now global market. The competition and high costs for New Zealand-based retailers, particularly
those with physical stores, will keep pressure on competitors’ margins while PVHBA works to and succeeds at increasing
its margins through widening sales channels and product lines. Intrinsically, PVH has space to grow Tommy and CK in
the AUS/NZ wholesale channel with new door growth and category expansion. Its growth in these regions will be
primarily through its acquisition of Gazal, which reported revenues of $205mm, up 76.6% compared to the past twelve
months. The Australian brand expects to increase its revenue to reach $260mm by the next fiscal year, which will assist in
driving PVH’s shares to its fair value. The JV’s current growth strategy involves adding to its store portfolio as well as
expanding current store space in anticipation of higher customer traffic. Since the implementation, sales in PVHBA
increased by 32.8% to $298.3mm for the 12-month period ended on February 2, 2019. The sales growth in the JV was
driven by the continuing expansion of sales of additional product categories under both Calvin Klein and Tommy Hilfiger
brands, as well as the ongoing development of international retail channels. EBITDA margins improved during the recent
period as well due to sales mix improvement from accelerated retail growth and overall costs of goods sold being well-
contained. The purchase of Gazal will highly reflect in PVH’s future earnings due to increased exposure in foreign markets
which will propel PVH’s shares to fair value. In addition, we believe investors will appreciate this acquisition given PVH
stock reaction after the acquisition news. PVH stock increased by 4.6% from $112.68 to $117.89 when management
announced the acquisition on January 21
st.









Consumerspending:
Theeconomicclimate,particularly
employmentrates,canaffectconsumer
spending.Wedoseerisktoour
estimatesshouldrobustconsumer
demandslowinthewakeoffurther
macrodeterioration.
Foreignexchangerates:
Asaninternationalcompany,PVHis
exposedtoforeigncurrencyrisk.With
thestrongU.Sdollar,theimpactis
weighingonthecompany'searnings
afromoverseasoperations.
Risks
Diversifiedglobalbusinessmodel:
PVHhasadiverseportfolioinmore
than40countriesandtwostrong
brandsalongwithseveralliscenses.
PVH consumershavestrong
attachmentswiththosebrands.
Socialmediapresence:
PVHhasastrongsocialmediapresence
featuringvariouscelebritiesthat
guaranteesthecompany'spresence
amongmillenials.ThisallowsforPVH
brandexposureandincreasecustomers'
attachmenttoitsbrands.
Moats

8. Spring 2019


Consumer: Designer Apparel Page 8
FINANCIALS
Revenue:
PVH Corp. generates its revenue from sales of finished
apparel products through wholesale and retail operations,
under its owned and licensed trademarks. In FY’17, total
revenue rose 2.3% YoY, reaching $8.2B while in FY’18, total
revenue increased 8.7% YoY, and reaching $8.9B. The
company’s revenue currently holds a 3-year CAGR of 8.2%,
and it generates royalty and advertising revenue from
licensing its trademark rights to third parties. Within the past
2 years, PVH has beat revenue estimates seven consecutive
times, with its only miss occurring in 4Q’17 by 0.4%. In
FY'18, revenue is expected to slightly decrease ($2.4B in
4Q'18) due to Calvin Klein’s high-end line temporarily closing operations; however, this temporarily increases cash flow,
allowing opportunity for reinvestment in its high-end collection or growth in other product lines, subsequently boosting
future revenue. PVH Corp. is the best-positioned retailer in a consolidating industry, achieving steady revenue growth in
the U.S with a current CAGR of 8.2% in comparison to the flat and negative comps the rest of the industry sees.
Debt:
PVH has been consistently paying off debt, with its
debt/equity ratio decreasing over ~20.3%. Over the past
year, PVH has reduced its debt from $3.4B to $3.2B, which
also accounts for its long term debt. With this reduction in
debt, PVH’s cash and short-term investments stand at
$401mm, ready to be used for business operations. Although
PVH’s debt level is towards the higher end of the spectrum,
its cash flow coverage is adequate enough to meet
obligations. Moreover, the company’s debt is utilized
efficiently through its optimal capital structure, as it is also
meeting its short-term commitments. PVH’s credit rating
for Moody’s is BA1 and BBB- for S&P.
CapEx/Cash Flow:
Since retail companies require low annual maintenance, the
majority of CapEx is spent on productivity and growth
strategies. The increase in CapEx is directly proportional to
sales and revenue for PVH, therefore increasing the
company’s value. PVH spent $270mm for the 39-week
period ending November 4, 2018, compared to $235mm
for the 39-week period ending October 28, 2017. It expects
that those expenditures will increase to approximately
$425mm by FY’18 due to improvement in the company’s
operating, supply chain and logistics systems and the digital
commerce platforms involved in the CK transformations,
as well as the renovation and expansion of the company’s headquarter locations in New York, NY, and Amsterdam,
Netherlands. Going forward, we expect the increase in CapEx to infuse confidence in investors as PVH’s profitability
increases.

9. Spring 2019


Consumer: Designer Apparel Page 9
Margins:
Holding a gross margin of 54.1%, PVH Corp. is
currently ahead of its peers, who maintain an
industry-wide average margin of 13.2%. This reflects
PVH’s ability to lock in customers with its effective
customer retention strategy, despite the retail sector
struggling to keep sales afloat amidst pressure from
the economic climate. However, 2Q’18 saw a
decrease in CK’s margins of 0.06%, sending shares
down as much as 9.6%. This is due to the company’s
plans of restructuring its high-end clothing line as the
CEO stated the decrease was caused by “clearing old
jeans product off the floor.” These short-term
aggressive actions will serve well for the second half of the year and as the company moves forward. As mentioned above,
new product launches are strategic for PVH top-line growth but carry the risk of further negatively impacting margins at
Calvin Klein as well as Tommy Hilfiger. New marketing campaigns similar to “#mycalvins” will impact COGS, as the
fixed cost to increase the brand awareness (ambassadors) of newly launched products is high, and operating margins will
reach their highest level only after a certain period of time. Additionally, margins are set to increase as international
segments come to represent a greater share of revenue in CK and TH stores following the Gazal acquisition and the
company’s execution of its international growth strategy.
Earnings:
During the three years of share price growth, PVH achieved an EPS growth of 15.0% per year. On September 10, when
PVH became undervalued, quarterly EPS began to decrease due to deceleration in revenue growth. Investors were pleased
with the strong earnings performance in the recent period ending November 29, which exceeded analysts’ expectations
for the eighth consecutive time, driven by the power of the company’s diversified global business model. PVH continues
to over-deliver against its 2018 plan, raising its full-year EPS guidance from $8.96-$9.01 to $9.33-$9.35 (up 33.0% YoY)
based on third quarter outperformance and the management’s confidence in the opportunities for the fourth quarter,
despite recent retailer bankruptcies in the U.S. and U.K. and increasing geopolitical volatility around the world. The
company boasts an impressive average surprise rate for the past two-quarters of 2.8%, having outpaced its struggling
industry peers. This has resulted in an expected earnings surprise rate of +1.14% for 4Q’18 and median forecasts for 2020
pushed to $10.30.
Same-Store Sales (SSS):
PVH’s SSS is divided into 5 segments: TH
International: In 3Q’18, TH International SSS
was 8.0% compared to 11.0% in 2Q’18. North
America TH business declined from 9.0% in
1Q’18 to 7.0% in 2Q’18 before increasing to
8.0% the next quarter. Both International and
North America CK businesses have faced a
decline in the past three quarters due to the
restructuring plan in CK's luxury business and
the closure of its NYC store; however, after
management's new plan to shut down the
luxury business that both investors and consumers did not appreciate, and by focusing on denim and underwear lines
which CK is well-known for, next quarter's sales should accelerate.

10. Spring 2019


Consumer: Designer Apparel Page 10
MANAGEMENT
Emanuel Chirico, Chairman & Chief Executive Officer
Mr. Chirico has served as CEO since 2006 and Chairman since 2007 in his career at
PVH for over 25 years. PVH has become one of the world’s largest global apparel
companies with nearly $9B in annual revenues and 36,000 associates operating in over
40 countries. Prior to becoming the CEO and Chairman, he served rotated between
financial and operational positions within the company as the President & Chief
Operating Officer and Chief Financial Officer. Before joining PVH, he was a Partner
at the Ernst & Young accounting firm, running the Retail and Apparel Practice
Group. Throughout his career, Chirico has embodied the PVH core values of
accountability, partnership, passion, integrity and individuality that he has helped
establish at the company.
Steve Shiffman, Chief Executive Officer, Calvin Klein
Mr. Shiffman has a retail experience of over 30 years. He became the CEO of CK in
2014 where he focuses on the strategy, product development, marketing, and
commercial operations for all CK product lines across the world. Prior to becoming
the CEO of CK, he served as the President and Chief Commercial Officer for Calvin
Klein, where he oversaw the global commercial operations of the business. Shiffman
joined PVH in 1992 and had several positions including President of Retail for the
Van Heusen. Before coming to PVH, he held a leadership position with Macy’s.
Daniel Grieder, Chief Executive Officer, Tommy Hilfiger Global & PVH Europe
Mr. Grieder held several international positions as a managing director, founder,
president and CEO of several European companies for over 30 years. He started as an
independent distributor who introduced the Tommy Hilfiger brand in Switzerland and
Austria. He joined Hilfiger Europe in 2004, was appointed COO, Tommy Hilfiger
Europe, in 2006, and became CEO, Tommy Hilfiger Europe in 2008. In 2013, he became
the CEO, PVH Europe, overseeing PVH’s businesses for both Tommy Hilfiger and
Calvin Klein in Europe after PVH acquisition of Warnaco. He became CEO, Tommy
Hilfiger Global, in addition to his continued role as CEO, PVH Europe in 2014. Trade DateNumber Participants Net Sell (Shares)Net Buy (Shares)PriceVolume
12/14/20182 CHIRICO EMANUEL, RYDIN CR 11,050 93.211.222M
10/1/2018 1 HOLMES JAMES W -33 141.32854,408
6/29/2018 2 SHIFFMAN STEVEN B, GRIEDE -528 149.72960,745
6/21/201811BAGLIVO MARY L, CALLINICOS 10,340 154.41.09M
6/8/2018 1 Fischer Mark D 168.16837,218
6/7/2018 1 Fischer Mark D 165.11969,707
6/6/2018 1 Fischer Mark D 164.41.124M
6/5/2018 1 Duane Francis K 160.96947,411
6/1/2018 1 GRIEDER DANIEL -8,971 158.961.284M
4/30/2018 4 CHIRICO EMANUEL, Shaffer M 38,470 159.67618,879
4/27/2018 1 STEINER MELANIE -143 160.51601,238
4/23/2018 1 CHIRICO EMANUEL 18,720 160.26659,231
4/20/2018 1 SHIFFMAN STEVEN B -1,250 159.48843,250
4/12/2018 2 Fischer Mark D, PERLMAN DA -527 162.251.08M
4/10/2018 3 Shaffer Michael A, HOLMES J -2,008 157.95989,622
4/9/2018 1 Shaffer Michael A 155.59930,895
4/6/2018 7 Duane Francis K, Shaffer Mic 31,034 156.731.241M
4/5/2018 1 Fischer Mark D 159.511.225M
4/4/2018 1 Duane Francis K 155.411.111M
Total -13,460 109,614

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PEER GROUP ANALYSIS

































Ralph Lauren Corporation (RL US)
Ralph Lauren Corp. engages in the design, marketing and distribution of premium lifestyle products. The firm offers
apparel, accessories, home furnishings, and other licensed product. It operates through the following segments: North
America, Europe, and Asia. The North America segment consists of sales of Ralph Lauren branded apparel,
accessories, home furnishings, and related products made through the Company's wholesale and retail businesses in
the U.S. and Canada, excluding Club Monaco. The Europe segment caters to sales of Ralph Lauren branded apparel,
accessories, home furnishings, and related products made through the Company's wholesale and retail businesses in
Europe and the Middle East, excluding Club Monaco. The Asia segment covers the sales of Ralph Lauren branded
apparel, accessories, home furnishings, and related products made through the Company's wholesale and retail
businesses in Asia, Australia, and New Zealand. In FY’17, RL reported $6,182mm in revenue.
Hanesbrands Inc. (HBI US)
Hanesbrands, Inc. is a consumer goods company, which engages in the design, manufacture, sourcing, and sale of
everyday basic innerwear and activewear apparel. It operates through the following three segments: Innerwear,
Activewear and International. The Innerwear segment includes men's underwear, women's panties, children's
underwear, socks and intimate apparel, sold in the United States (US). The Activewear segment includes activewear
products, such as T-shirts, fleece, performance apparel, sport shirts and thermals, sold in the US. The International
segment includes innerwear, activewear, hosiery and home goods products, sold outside of the US. Its brands include
Hanes, Champion, and Bonds. HBI reported $6,804mm in sales revenue for FY’17.
Columbia Sportswear Company (COLM US)
Columbia Sportswear Co. engages in the design, source, market, and distribute outdoor and active lifestyle apparel,
footwear, accessories, and equipment. It operates through the following geographical segments: the United States;
Latin America and Asia Pacific; Europe, Middle East, and Africa; and Canada. It also serve under the following brands:
Columbia; Sorel; Mountain Hardware; and other brands. In FY’17, COLM reported $2,761mm in revenue.
Gildan Activewear Inc. (GIL CN)
Gildan Activewear, Inc. engages in the manufacture of family apparel, including T-shirts, fleece, sport shirts, socks,
underwear, hosiery and shapewear. The company's brands include Gildan, American Apparel, Comfort Colors, Gildan
Hammer, Gold Toe, Anvil, Alstyle, Secret, Silks, Kushyfoot, Secret Silky, Therapy Plus, Peds and MediPeds. Gildan
Activewear was founded by Glenn J. Chamandy and H. Gregory Chamandy on May 8, 1984 and is headquartered in
Montréal, Canada. GIL reported $2,909mm in sales revenue in FY’17.

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APPENDIX
Exhibit 1: Price Target

















Exhibit 2: Analysts target price estimates (Credit Suisse)

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Exhibit 3: Sensitivity Analysis tables
















Exhibit 4: Analysts estimates
Consensus Rating: 4.6/5 Buys: 80% Holds: 20% Sells: 0%

Analyst Ratings
1-Strong Buy 5
2-Buy 9
3-Hold 5
4-Underperform 0
5-Sell 0

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Exhibit 5: Comps table

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Exhibit 6: Historic U.S & Australia disposable income growth

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Exhibit 7: PVH Revenue

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DISCLAIMER
This report is prepared strictly for educational purposes and should not be used as an actual investment guide. The forward-
looking statements contained herein are simply the author’s opinions. The writer does not own any PVH Corporation
(PVH) stock.

TUIA STATEMENT
Established in honor of Professor William C. Dunkelberg, former Dean of the Fox School of Business, for his
tireless dedication to educating students in “real-world” principles of economics and business, the William C.
Dunkelberg (WCD) Owl Fund and Fox Fund will ensure that future generations of students have exposure to a
challenging, practical learning experience. Managed by Fox School of Business graduate and undergraduate
students with oversight from its Board of Directors, the WCD Owl Fund’s goals are threefold:
 Provide students with hands-on investment management experience
 Enable students to work in a team-based setting in consultation with investment professionals.
 Connect student participants with nationally recognized money managers and financial institutions

Earnings from the fund will be reinvested net of fund expenses, which are primarily trading and auditing costs
and partial scholarships for student participants.