Why PVH Is Bucking The Retail Trend

PVH Corp PVH updated its FY 2016 fourth-quarter guidance on December 5, stating that it expected its EPS “at least at the top end” of its FY 2016 guidance of $6.70–$6.75.

Brean Capital’s Eric Tracy maintains a Buy rating on the company, with a price target of $120.

Growing Despite Headwinds

Tracy believes PVH continues to be “a share taker against broader domestic wholesale headwinds, even as benefits from an improved operating model largely masked by FX headwinds.”

In fact, with the stock having declined 16 percent from its post-Q3 highs, the analyst believes that the pullback was overdone and the risk/reward was now skewed “asymmetrically to the upside.”

Opportunities Ahead

PVH expects revenues to accelerate in FY 2017 and beyond, and Tracy noted that the Q4 guidance following the Q3 results appears conservative, despite revenue headwinds.

Beyond FY 2017, the analyst sees revenue levers, such as domestic opportunities from a partnership in Tommy Hilfiger, opportunities in Calvin Klein Europe and the growing DTC business.

Tracy views the updated guidance as “testament to the benefits of PVH's improved operating model, including 1) rationalized distribution, and 2) stepped up marketing spend, which have helped PVH buck headwinds at dept stores and domestic wholesale more generally amidst continued consumer migration online.”

The analyst expects PVH to have free cash flow of $500 million in FY 2016 and for the company to continue to balance cash deployments between strategic license acquisitions and capital structure optimization.