PVH reported strong digital sales, alongside lower freight costs and lower inventory levels, as it shows signs of progress in Q3. Although, analysts noted that weakness in the fashion conglomerate’s home market in the US has slowed the group’s recovery.
PVH’s CEO Stefan Larsson commented: “We expanded gross margin, improved inventory productivity and increased our marketing investments, driving strong consumer engagement and overall, significantly improved profitability. We continue to see incredible strength in our iconic brands as we tap into their beloved DNA and build them into the most desirable lifestyle brands in the world.”
In the quarter, PVH also completed the sale of its three intimate brands – Warner, Olga and True&Co – to Basic Resources, which analysts at the time described as a “positive” move for PVH.
PVH said the $160m sale had a potential earn out of up to $10m, based on calendar year 2024 net sales of a portion of the sold business.
Digital retail is becoming a focus for PVH, as it increased 13% in Q3 2023, compared to the same period in 2022. PVH said this was due to growth in the company’s owned and operated digital commerce revenue. The group also saw growth in digital sales at other retailers. Digital sales accounted for 20% of the group’s total revenue.
GlobalData’s apparel analyst Alice Price explained: “PVH’s turnaround strategy continues to show signs of success, with improvements to its product offering and marketing campaigns allowing it to report growth for a fourth consecutive quarter, with total revenue in Q3 FY2023/24 increasing by 3.6% to $2.4bn.”
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Key results for PVH in Q3 2023
- Revenue increased 4% to $2.36bn
- Direct-to-consumer revenue increased 8% compared to the prior year period, or 6% on a constant currency basis
- North America revenue at Tommy Hilfiger increased 6%, while revenue declined 1% at Calvin Klein.
PVH said that lower freight costs, as well as a “favourable shift in region and channel mix” had helped increase margins, although this was partially offset by higher product costs. Overall, gross margins were 56.7% in Q3 2023, compared to 55.9% in the same period last year.
Inventory levels also declined by 19%, in line with expectations, as it aims for a 25% reduction in inventory as a percentage of sales.
Price added: “Calvin Klein experienced the greatest uplift in sales in the quarter, with revenue rising 5.8% to $1.0bn, predominantly driven by its international business, which in constant currency revenue grew by 6.1%, compared to a decline of 1.3% in North America.”
Price said that, while the economic climate will have partially caused Calvin Klein’s slowdown in PVH’s home market, she noted that competitors including Hugo Boss have continued to report stronger results in the US. She suggested the problem could stem from Calvin Klein’s offering.
Price also noted that PVH’s Tommy Hilfiger had a better quarter, with modest growth of 3.7%, a slight decrease on the previous quarter when revenue grew 5.6%. She added: “In contrast to Calvin Klein, Tommy Hilfiger had stronger year-on-year growth in North America of 6.2%, compared to a constant currency increase of just 2.6% internationally, though this is largely due to its home market still having a greater recovery to make, as it remains 15.0% down on Q3 FY2019/20.”
The development comes after PVH said revenue growth for Q2 was driven by growth in its Tommy Hilfiger and Calvin Klein businesses.
GlobalData’s Price added: “Despite the business’ Q3 YTD sales being up 3.2%, PVH now expects Q4 to decline by 3% to 4%, partially due to the divestment of its Heritage Brands intimate apparel division, coupled with the challenging economic climate. This has led it to lower its full-year revenue outlook to a growth of just 1%, compared to a previously projected increase of 3% to 4%. This means that it now has an even longer way to go before it regains its former status in the market, with revenue still tracking 8.7% below pre-pandemic levels.”
What next for PVH?
Zac Coughlin, PVH’s chief financial officer, commented: “Through the PVH+ Plan, we are relentlessly focused on delivering strong profitability, significant cash flow and attractive returns for our shareholders, while pursuing sustained, long-term growth in a choppy macroenvironment.”
GlobalData’s Price added: “Going forward, PVH must continue to enhance brand desirability to secure its recovery. In November 2023, it revealed Damson Idris as its newest Tommy Hilfiger menswear ambassador.
“As the star of the hotly anticipated yet untitled Formula 1 film, the partnership will enable the brand to capitalise on the growing popularity of the sport. It also announced it will be the official sponsor of the film, with the Tommy Hilfiger flag being featured on the cars and drivers’ kits, enabling it to boost brand awareness and visibility.”