The luxury retail segment is on the rise. Customers are showing growing interest in such products as the affluent customers remain less affected from the economic woes. Also, the decline in oil prices and an increase in the income of people has been helpful.
Thus, the luxury product retailers are witnessing gains. For instance, PVH Corp (PVH, Financial), a luxury apparel retailer, registered a decent third quarter this month as demand for its products increased. The results were ahead of the Street's estimates, but a weak outlook resulted in a sharp fall in share price.
By the quarter
Total sales dropped 1.2% to $2.23 billion, over last year. However, this includes the costs related to the divestiture of Bass business which is non-recurring in nature. Excluding the costs related to the buyout, revenue was up 2% on an organic basis. But the top line was lower than the analysts' estimate of $2.26 billion.
The gross margin of the company expanded 70 basis points to 52.4% during the quarter. Also, the bottom line surged over the previous year. Earnings jumped 11% to $2.56 per share, which was significantly higher than the estimate of $2.48 per share. PVH managed to control its costs and boost its margins. Also, the premium nature of its products enables it to register higher margins.
Analyzing further
The biggest strength of PVH Corp lies in the brands which it offers to the customers. Strong and popular brands such as Calvin Klein and Tommy Hilfiger attracts more and more customers. Revenue from Calvin Klein brand grew 2% to $816 million over last year, despite unfavorable currency fluctuations. Although international business was weak, the demand in the North American market surged 5% as comp sales increased by 5%. Also, CK's royalty revenue surged 2% during the same period. Also, initiatives taken for Calvin Klein's jeans business should boost its revenue further.
The North American Wholesale business benefitted from the timing of shipments. Goods which were to be shipped in the fourth quarter were shipped in the third quarter only, adding to the revenue base.
The retailer also registered growth in other brands such as Tommy Hilfiger and Heritage Brands. Revenue from Tommy Hilfiger surged 1% and that from Heritage Brands grew 3%. Both these businesses witnessed higher demand in North America and softer sales in the International market, especially Europe. The extremely competitive environment and higher promotions by peers have made the international market difficult to survive.
However, strength in women wear, new shop environments and store remodels should help attract more customers to its stores. Also, it plans to provide huge discounts and promotions during the fall season.
Furthermore, it lowered its guidance for the year due to foreign currency fluctuations. It lowered the top line estimate to $8.3 billion from $8.4 billion earlier. Also, it expects earnings in the range of $7.25 to $7.30 per share from an earlier estimate of $7.30 to $7.40 per share.
To end up with
It is clear that PVH Corp's strength in offering popular brands is one of the major drivers of growth. Also, its expansionary efforts and focus on women wear should further help the company grow. However, a weak outlook should make investors wary of this company. Hence, staying on the sidelines is a better option.
