Focusing On Calvin Klein And Tommy Hilfiger Will Create Opportunities

Key Takeaways

• Streamlined operations focusing on core brands are expected to increase revenue growth, improve margins, and enhance overall earnings.
  
• Strategic changes in sales channels and innovative marketing campaigns are driving increased consumer engagement and profitability.
  
• The addition to MOFCOM's unreliable entity list and macroeconomic pressures threaten PVH's growth in key markets, impacting revenue and margins.

Catalysts

Operates as an apparel company in the United States and internationally.

• PVH's simplification of its operating model and focus on Calvin Klein and Tommy Hilfiger is anticipated to streamline operations and drive revenue growth, enhancing net margins and earnings growth.
  
• The company's strategic decision to cut less profitable third-party sales in Europe and improve its product and marketing strategies has led to growth in DTC and wholesale order books, which is expected to boost revenue and improve margins in Europe, enhancing overall profitability.
  
• The launch of innovative product assortments, like the Calvin Klein underwear campaign with Bad Bunny, is creating significant consumer engagement and is expected to drive higher revenue from higher-margin core products.
  
• The transition from a licensed to an in-house wholesale business model in North America for women's sportswear is expected to elevate product offerings at wholesale, thus potentially improving revenue streams and profitability margins.
  
• The acceleration of share repurchases in 2025 is expected to capitalize on the current stock valuation, enhancing EPS growth despite anticipated macroeconomic challenges.

PVH Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PVH's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.9% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $721.2 million (and earnings per share of $16.69) by about April 2028, up from $598.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, up from 6.3x today. This future PE is lower than the current PE for the US Luxury industry at 15.1x.
• Analysts expect the number of shares outstanding to decline by 5.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.86%, as per the Simply Wall St company report.

PVH Future Earnings Per Share Growth

Risks

• PVH’s addition to MOFCOM’s unreliable entity list poses a significant risk, potentially impacting its long-term revenue and business operations in China, which is a key growth market.
  
• The macroeconomic pressures in North America and the post-New Year slowdown in China have led to decreased retail traffic and revenue stabilization at lower levels, which may impact PVH’s revenue growth and net margins.
  
• The transition challenges related to centralizing Calvin Klein’s global product capabilities have led to increased product development timelines and production costs, putting pressure on profit margins.
  
• The temporary margin headwinds due to delays in Calvin Klein product deliveries and the wholesale license transition from G-III to in-house could negatively affect earnings, particularly in the first half of 2025.
  
• Fluctuations in freight costs and a more promotional environment in North America might negatively affect PVH's gross margins, pressuring the bottom line if similar situations persist.

Valuation

• The analysts have a consensus price target of $97.429 for PVH based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $68.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.1 billion, earnings will come to $721.2 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 9.9%.
• Given the current share price of $71.66, the analyst price target of $97.43 is 26.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.