PVH 2H guidance still does not look like a slam dunk to me. The company is in a precarious position right now. I’ll refer, as usual, to my little inventory/margin Quad chart below. This quarter PVH slipped into the zone where gross margins are 184bps higher than last year, but where inventories are outclipping sales growth by 4%. If you check out PVH’s chart over the past few years, you’ll see that when inventories are growing faster than sales, this stock does not go up.
Moreover, the company’s guidance suggests that we need to see a 200-300bp revenue acceleration on a normalized run rate. Yes, we’ll see a ramp in PVH’s new Timberland business, and growth in Izod, but at a combined size of sub-5% of total, they’re still not particularly meaningful. Calvin Klein’s licensing business continues to crank – and I don’t have many concerns there aside from the negative impact of FX that is passed through indirectly to PVH. But let’s remember that ½ of the company’s cash flow is still men’s dress furnishings, which is in the bulls eye of both the negative secular inflection point for margins due to changes in sourcing patterns and global trade, as well as a cyclical hurdle in the form of white collar layoffs (see my prior posts on this relationship ).
With the company beating 2Q by a penney, and deleveraging SG&A by 233bps (more than I suspected) it smells to me like this company could have beat the quarter by much more than it did. That’s a positive in some respects, unless PVH only printed what it had to in order to keep its powder dry to fund an otherwise daunting (or simply unknown) 2H.