PVH Stock Gets 25% Discount: Is Now the Time to Buy?

Key Points

• PVH Corp. had a solid quarter but guided weak; analysts think it's cautious and easily beaten. 
• Margin strength helped to sustain earnings growth and capital returns. 
• The share repurchase plan was increased by $2 billion or about 1/3 of the new market cap. 

PVH’s NYSE: PVH quality operations, cash flow, and capital returns make the 25% discount on share prices an opportune time to buy the stock. The cause of the price implosion is the guidance, which came in below the analysts' consensus estimates. However, as weak as the guidance is compared to consensus, the whisper was that guidance was expected to be light and cautious given the uncertain economic outlook for apparel makers. 

The company may have surprised the market with overly cautious guidance, but the takeaway is the same. This company is well-positioned to generate cash flow in 2024 and is set up for accelerated earnings growth when economic uncertainties evaporate. That could be as early as mid-summer when the FOMC is expected to cut or indicate the first interest rate cut in years. 

PVH Has a Solid Quarter, Guides Cautious, Increases Capital Return

PVH Corp. is the parent of Tommy Hilfiger and Calvin Klein, two of today's most iconic brands. The company’s brand position and lean into PVH+, including building its brand strength, led to better-than-expected revenue in Q4. The Q4 results include $2.49 billion in net revenue, which is flat compared to last year and 300 basis points better than expected. 

Strength was driven by International, Direct-to-Consumer, and Tommy Hilfiger, offset by weakness in Calvin Klein, North America, and Wholesale Channels. DTC, the company’s pillar, grew by 9%, with digital up 10% while wholesale fell by 10%. 

The decline in Wholesales is a headwind today and for 2024 but a silver lining for investors. The decline is attributed to caution among retailers and reduced inventory levels compounded by PVH's inventory management. Inventory is down 20% compared to last year, putting the company in a lean operating position, ready for the next consumer rebound. The shift to demand-driven inventory management aids the outlook because PVH should be able to ramp production as demand improves and wholesales return to growth. 

Margin is another area of strength in the report. The company’s strengths include pricing power, leading to better-than-expected gross and operating margins. The GAAP results include a 440 bps improvement in gross margins and earnings, nearly double last year, while adjusted earnings are up 56% and beat the consensus reported by Marketbeat by 550 bps. 

The weak spot is the guidance, which calls for revenue to fall by -6% to -7% or by -3% to -4%, adjusted for the extra week in 2023 and the divestiture of heritage brands. Earnings are expected to range from $10.75 to $11.00 compared to the $12.50 forecasted before the release. The upshot is that guidance is likely cautious, and cash flow remains robust. 

PVH Corp Increases Share Repurchases By $2 Billion 

PVH Corp.’s cash flow and balance sheet allow for robust share repurchases. The company bought back $550 million worth of shares in 2023 to reduce the share count by 6%, increasing the authorization for 2024. Now that share prices have corrected, the new authorization adds $2 billion, or about one-third of the market cap.

The analysts’ support for the stock has been firm since the release. Several companies have come out to reiterate Outperform or equivalent ratings, although the price targets are falling. The good news is that revisions are lowering the high end of the range and are so far above consensus. 

The lowest new target is $138 from Wells Fargo & Company, which is $19 or 16% above the consensus, and the consensus implies a 12% upside. Takeaways from the chatter are that macroeconomics are impacting results now, but margins are healthy, and efforts to improve business quality set it up for leverage. It may take some time for PVH’s market to regain footing, but upward bias is expected, and recent highs should be retested. 

PVH Stock Price Falls to a Critical Support Level

The price action in PVH fell hard, more than 20%, and it may fall further. However, the market price moved into a congestion band that may provide support given the outlook for repurchases and share prices. If not, this market could fall another $15 to the $90 region before finding solid support. Assuming the market takes advantage of the opportunity today, the share price should start to form a bottom at or near the current level.