This Apparel Company Looks Good for the Long Run

PVH (NYSE: PVH  ) is one of the world's largest apparel companies, and controls several different brands such as Calvin Klein, Tommy Hilfiger, and Heritage. It is also the world's largest shirt and neckwear company, and markets its products under different brands such as Arrow, Van Heusen, and Bass. Driven by the strength of its iconic brands and good products, the company has consistently done well in the past few years, as seen in the chart below.

PVH Revenue TTM Chart

PVH Revenue TTM data by YCharts.

Opportunity ahead
The global luxury menswear market is growing at about 14% a year, or nearly double the pace of the luxury women's wear market, according to consulting firm Bain & Co. The menswear market is expected to exceed $402 billion in 2014, and the Americas represent 35% of the global market. PVH has been increasing its footprint through acquisitions and licensing deals to make the most of the opportunity in the end market.

PVH completed the acquisition of The Warnaco Group earlier in February this year . This acquisition led to better than expected second quarter results. Revenue jumped a whopping 47% compared to the same quarter the year before, rising to $1.96 billion and comfortably beating analysts' estimates of $1.88 billion.

Likewise, the acquisitions of Speedo and Olga and Warner's women's intimate apparel businesses by Heritage Brands were the main drivers behind that segment's revenue increase of 36.2% year-over-year.

On the back of strong revenue growth and improved margins, the company reported earnings of $1.39 per share. In doing so it beat both its own guidance as well as consensus estimates . This shows that the company's recent acquisitions have been performing well.

A smart strategy
Looking elsewhere, the global home improvement and furnishings market is expected to be worth $700 billion by 2015 . The outlook for home décor in the U.S. is also favorable, and sales are expected to reach $38.6 billion in 2016; this is up 27% from 2011 . To increase its footprint in this segment, Tommy Hilfiger (a wholly-owned subsidiary of PVH) entered into a licensing deal with LF USA .

These home décor products are scheduled to be made available in select Tommy Hilfiger stores, Macy's, and select department and specialty stores in the U.S., Canada, and Mexico.

These new product additions will also be available on tommy.com in the U.S., Canada, Mexico, and South America beginning in spring 2014. As a result, the Tommy Hilfiger home collection should lead to higher revenue and profits.

More options
Apart from PVH, investors can consider the following two companies as additional ways to benefit from growth in the apparel market.

G-III Apparel (NASDAQ: GIII  ) has a strong portfolio of 30 licensed brands, marketing apparel, outerwear, beachwear, luggage, women's handbags, small leather goods, and accessories, to name a few of its products. The company sells its apparel offerings under popular brand names like Andrew Marc, Jessica Howard, Calvin Klein, Levi's, and Tommy Hilfiger. The company has also announced plans to revive the Starter Statin jacket franchise . It is also looking at acquisitions and mergers to grow its business moving forward .

However, one big red flag for any investor looking at investing in G-III is the fact that 63.7% of its 2013 revenue came from its 10 largest customers. Macy's, for example, provided 16.8% of G-III's sales in fiscal 2010; this increased to 18.7% in 2012, and now accounts for one fifth of revenue . Dependence on a limited number of customers for such a large chunk of revenue is a risky proposition, and is even more so in the volatile apparel retail market.

According to Bain & Company, the luxury goods market will grow to be a €250 billion industry by 2015. The major chunk of this growth will come from Asian countries like China, Japan, Malaysia, and Singapore . The industry is expected to grow as much as 50% faster than global GDP. These estimates will certainly be welcomed by a company like Coach (NYSE: COH  ) , which has already increased its footprint in these countries.

Coach designs and markets premium bags, accessories, and other wearable items, and has been performing well in the international markets. Coach saw an increase of 10% in its international business in the last quarter, and sales in China jumped an impressive 35%. Going forward, Coach plans to grow its retail square footage by 9% this year.

In addition, it is optimistic about its dual-gender "Legacy" lifestyle collection and dedicated men's stores. Coach expects to attain more than $600 million in sales worldwide from its men's business and at least $425 million in sales in China in fiscal 2013 .

Conclusion
PVH has been a very consistent performer and the company seems to be making the right acquisitions. It is moving in the correct direction as its acquisitions should help it tap into the opportunity in the global luxury menswear market. Moreover, at just 14 times forward earnings estimates, PVH might prove a good pick since investors won't be paying too much for its expected earnings growth.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.


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