Why Brand Value Still Matters

PVH's (NYSE: PVH  ) 2010 acquisition of Tommy Hilfiger turned out to be a good long-term prospect. PVH posted a handsome growth in profits in its third quarter, spurred mainly by Tommy's international sales.

The growth speaks volumes for PVH, known to be a high-end clothier trying to sail through a struggling, cash-strapped economy. Let us take a closer look at what makes PVH tick.

Good third-quarter showing
PVH's net income came in at $112.2 million, a 12% rise from $99.8 million in the year-ago period. Continued healthy sales for both its Calvin Klein and Tommy Hilfiger brands of clothes spurred this growth.

Strong sales, both domestic and international, also boosted revenue by 9% from last year to $1.65 billion. This even exceeded management expectations. Tommy Hilfiger, in particular, went a notch ahead of Calvin Klein, as the former's strong international sales base led it to post an earnings increase of 27% over Calvin Klein's 13%. Naturally, PVH felt confident enough to raise its full-year outlook.

What spurred the growth
Tommy Hilfiger's strong international sales were a major boost to PVH's third-quarter figures, as the brand registered a 17% growth in revenue over last year, spurred by key markets such as the United Kingdom, Italy, and France. Of course, one of the main reasons behind Tommy Hilfiger's acquisition was because the former is known to generate a large chunk of its revenue from international markets. But then, its other flagship brand Calvin Klein was not far behind either as its revenues went up by a healthy 11%.

However, PVH needs to check back on its competitors' progress as well. For instance, rival Ralph Lauren (NYSE: RL  ) also cashed in on robust sales figures to post a 14% increase in second-quarter profits. PVH needs to be particularly wary of Ralph Lauren, which is a highly aspirational brand, and whose overseas revenue is around 38% of the consolidated total. Ralph Lauren also caters to a similarly wealthy segment and is in the process of launching new brands such as Lauren footwear.

The Foolish conclusion
PVH is certainly not getting complacent as it aims to spend around $5 million more than what it did last year on international marketing, with the stress being on holiday campaigning through television and cinema.

This is one company that has brand recall, caters to the high-end segment that is not really "discount-dependant," and has structured future plans. It may be a good idea to stock up on PVH.

Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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