Why is PVH Stock Falling Despite Solid Q4 Beat?

American clothing and lifestyle company PVH Corp. (PVH) is facing the brunt of analyst downgrades despite reporting an outstanding beat and raise fourth-quarter performance.

PVH stock plunged more than 7% during intraday trading on Wednesday, after Wall Street analysts cut price targets on the stock due to concerns about its exposure to Eastern Europe and foreign exchange rates impact.

Year-to-date the stock has lost 23.5%. The PVH stock closed down 6.5% at $82.69 on March 30. The company plans to successfully navigate the supply chain challenges, inflationary pressures, and the impact of the Ukraine war by driving brand and product relevance with its two iconic brands, Calvin Klein and Tommy Hilfiger, by harnessing the power of its digital channel, improving customer engagement, and increasing efficiencies.

Q4 Results in Detail

PVH reported a jump of 16% in Q4 revenue at $2.43 billion compared to the prior-year period. The number even outpaced Street estimates of $2.37 billion. The solid revenue jump was backed by meaningful growth in the international markets, mainly Europe, which even surpassed pre-pandemic levels.

Moreover, the company’s quarterly adjusted earnings came in at $2.84 per share, significantly higher than the same period last year. The figure was even better than the year-ago period’s adjusted loss of $0.38 per share.

The company even improved its gross margins by 400 basis points to 58.3% aided by full-price selling and a favorable shift in the regional sales mix.  

Looking towards PVH’s full-year fiscal 2021 performance, its adjusted earnings exceeded guidance and stood at $10.15 per share. This compares favorably to the FY20 adjusted loss of $1.97 per share.

Notably, FY21 revenue leaped 28% annually to $9.16 billion, with digital channel sales growing approximately 30% compared to FY20, and representing 25% digital penetration as a percentage of total revenue.

2022 Outlook

While guiding its 2022 metrics, PVH stated that its guidance includes the negative impacts of temporary store closures in Russia and Belarus, and reduced wholesale shipments to Ukraine due to the ongoing war.

For the first quarter of fiscal 2022, PVH expects revenue to remain fairly stable compared to the year-ago period. The company expects a 1% decline in its international operations due to the ongoing war.

Additionally, PVH expects Q1 GAAP earnings to fall between $1.55 per share and $1.60 per share with a 15 cents decline due to the war-related impacts discussed above. Meanwhile, consensus estimates for the same are pegged much higher at $2.35 per share.

For FY22, PVH forecasts revenue to grow between 2% and 3% over FY21 (~$9.43 billion), with a 2% reduction following the war-related impacts, and FY22 GAAP earnings are projected at $9 per share. Analyst consensus for revenue and earnings stands higher at $9.5 billion and $9.92 per share respectively.

CEO Comments

Talking about the future, Stefan Larsson, CEO of PVH, said, “As we look ahead, we are confident in the strength and momentum in our business and our ability to drive strong underlying top and bottom-line growth by leaning into what is within our control, despite the significantly increased macroeconomic and geopolitical volatility over the last few months, including the war in Ukraine, the impact of the global pandemic, and the inflationary pressures we see across our regions.”

Analysts’ Take

Following PVH’s quarterly performance, Wells Fargo analyst Ike Boruchow lowered the price target on the stock to $95 (14.9% upside potential) from $110 while maintaining a Hold rating.

Boruchow is concerned about PVH’s exposure to Europe, tourism, and foreign exchange impacts. The lower-than-expected guidance and Q4 beat did not come as a surprise to the analyst, who has lowered the earnings forecast for FY22 and FY23 in tandem with the company’s outlook.

Lamenting similar issues, Credit Suisse analyst Michael Binetti too, lowered the price target on the PVH stock to $112 (35.5% upside potential) from $145 and reiterated a Buy rating.  

The other analysts on the Street too, have a cautiously optimistic view on PVH, with a Moderate Buy consensus rating based on four Buys and five Holds. The average PVH price target of $108.33 implies 31% upside potential to current levels at the time of writing.

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