PVH Corp.

PVH Details

PVH Corp. (NYSE: PVH) is engaged in designing and marketing branded clothing products with a diversified brand portfolio, including Tommy Hilfiger, Calvin Klein, Van Heusen, Izod, Arrow, Warner’s, Olga, True&Co. and Geoffrey Beene. It is one of the largest global apparel companies globally, operating in more than 40 countries and having 140 years of history. The company's leading designer brands Calvin Klein and Tommy Hilfiger generated more than 85% of its revenues during 2020 and 2019. PVH operates in six operating segments, namely, Tommy Hilfiger North America, Tommy Hilfiger International, Calvin Klein North America, Calvin Klein International, Heritage Brands Wholesale, and Heritage Brands Retail (earmarked for exit by mid-2021).

Restructuring the Business to Improve Efficiencies: In March 2021, the company announced a reduction in its workforce (mostly in international markets) and real estate footprint, including reducing office spaces and closure of certain selected stores. The move could result in an annual cost saving of approximately USD 60 million for the company. Earlier, in July 2020, the company had announced plans to restructure its North American operations, including the exit from its Heritage Brands Retail business by mid-2021, to better align itself with the evolving retail market. Under this, it completed the sale of its Speedo North America business to Pentland Group PLC, the parent company of the Speedo brand, on April 06, 2020.

Q1FY21 Results: The company reported a massive increase in 57.53% rise in net sales to USD 1,980.50 million in Q1FY21 (ending May 02, 2021) as compared to USD 1,257.20 million in Q1FY20 (ending May 03, 2020), which was impacted by temporary store closures resulting from the outbreak of Covid-19 pandemic. Net income increased to USD 99.70 million in Q1FY21 compared to the loss incurred of USD 1,097.20 million in Q1FY20. As of May 02, 2021, PVH stood at the cash and cash equivalents of USD 913.20 million with a total debt of USD 3,058 million. The apparel provider suspended paying dividends after paying a USD 0.0375 per share dividend announced on March 31, 2020, in response to the impact of the Covid-19 pandemic.

Revenue Mix (Source: Investor Update Report, Spring 2021)

Key Risks: PVH’s sales to its top five largest customers accounted for 16.3%, 18.4%, and 18.9% of the total revenues in FY20, FY19, and FY18, respectively. Excessive reliance on a small set of customers for revenues could hurt the company’s financial and operational health in the future. Moreover, PVH’s traditional brick-and-mortar retailers experienced significant business troubles due to the covid-19 pandemic. Most of the company’s customers in North America filed for bankruptcy, including J.C. Penney Corporation, Inc., one of the ten largest customers in 2019.

Outlook: The company expects its capital expenditure for the FY21 to be in the range of USD 300 million to USD 325 million to support continued investments in enhancements of digital commerce platforms and systems globally and expansion of warehouse and distribution network. PVH projected its FY21 revenues to increase by 24% to 26% compared to FY20 and EPS on a GAAP basis to be around USD 5.50. For Q2FY21, PVH expects its revenues to be increased by 34% to 36% compared to the prior year and EPS on a GAAP basis to be in the range of USD 0.79 to USD 0.82.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PVH Daily Technical Chart

Stock Recommendation: PVH’s share price has surged by 112.15% in the past twelve months and is currently trading at a higher end of the 52-week range of USD 41.77 to USD 121.17. The stock is currently trading above its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 90.10. Considering the significant increase in the stock price in the past twelve months, market dominance, reasonable balance sheet, associated risks, and current valuation, we recommend an “Expensive” rating on the stock at the current price of USD 105.29 as on June 17, 2021, at 2:35 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Skechers U.S.A., Inc.

SKX Details

Skechers U.S.A., Inc. (NYSE: SKX) is engaged in designing and marketing lifestyle footwear for men, women, and kids under the trademark of ‘Skechers.’ SKX sold its products, including apparel, bags, eyewear, etc., through the department and specialty stores, athletic and independent retailers, and online websites. SKX sourced its products via contract manufacturers located in China and Vietnam. The company operates in three segments viz, 1) Domestic Wholesale, which operates via distribution channels such as big-box footwear stores, department stores, etc. 2) International Wholesale, operating via overseas subsidiaries, joint-ventures, and distributors, and 3) Direct-to-Consumer, that sells through e-commerce, concept stores, factory outlet, and warehouse outlet stores.

Onboarding Michael Ballack: On June 08, 2021, one of Germany's leading footballer joined the marketing campaigns of SKX in Europe. The German midfielder is slated to appear in multi-stage marketing programs in support of the brand’s performance and collections.

Q1FY21 Results: The company reported a 14.97% rise in sales to USD 1,428.41 million in Q1FY21 (ending March 31, 2021) compared to USD 1,242.34 million in Q1FY20, primarily due to an increase in international sales. Net earnings increased 2.78x YoY to USD 114.50 million in Q1FY21 compared to USD 41.16 million in Q1FY20. As of March 31, 2021, SKX stood at the cash and cash equivalents of USD 1,284.54 million with a total debt of USD 780 million. The company incurred capital expenditures of USD 84.20 million during the quarter to expand a joint-venture-owned domestic distribution center, new corporate offices in California, and improvement in technology and retail stores.

Financial Metrics (Source: Investor Presentation, May 2021)

Key Risks: The company is highly dependent on independent contract manufacturers. Its top five manufacturers contributed approximately 42.10% to its total purchases in FY20. Excessive dependence on certain producers for business could affect the company's operations and finances. 

Outlook: SKX expects its revenues to be in the range of USD 5.8 billion to USD 5.9 billion in FY21, with the diluted EPS to be around USD 1.80 to USD 2.00. It expects its capital expenditures to be in the range of USD 200 million to USD 250 million, focusing on expanding distribution capabilities, improvement in e-commerce technologies, and new retail offices in California.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SKX Daily Technical Chart

Stock Recommendation: SKX’s share price has surged by 50.61% in the past nine months and is currently trading at a higher end of the 52-week range of USD 27.03 to USD 53.14. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 44.20. Considering the significant increase in the stock price in the past nine months, robust fundamentals, reasonable balance sheet, associated risks, and current valuation, we recommend an “Expensive” rating on the stock at the current price of USD 48.01 as on June 17, 2021, at 3:12 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.