The Biggest Apparel Company You've Never Heard About

We're all familiar with Calvin Klein underwear and Tommy Hilfiger shirts. Most aren't aware that both brands are part of PVH  (NYSE: PVH  ) , a company with a market cap of almost $10 billion. In the past year, the stock has been a steady performer that has beaten the S&P 500 with a rise of over 22%. The company also owns the iconic brands Van Heusen, Izod, Bass and Arrow. The company has done a great job in making the right acquisitions and in expanding its brands globally.

Overview
PVH really got things going for itself in 2003 with the acquisition of Calvin Klein. Then in 2010, the company added Tommy Hilfiger. Together, both account for 75% of the company's profits and will likely be the key drivers of growth going forward.

This year PVH closed on the acquisition of Warnaco for $2.9 billion. The acquisition of Warnaco brought the Calvin Klein brands together under one roof (Warnaco held the license to Calvin Klein underwear and jeans from PVH). Because it now has all of the Calvin Klein brands, PVH expects $100 million in annual cost savings within three years. PVH CEO Emanuel Chirico said regarding the acquisition

Bringing all of the Calvin Klein brands in house was critical for us. Having direct global control of the two largest apparel categories for Calvin Klein, jeans and underwear, will allow us to unlock additional growth potential of this powerful designer brand.

Recent events
The company's second quarter earnings came in at $1.39 per share. This was much better than the company's prior guidance for $1.35 per share. Revenues rose 47% to $1.965 billion compared to last year's first quarter. Comparable store sales for Calvin Klein North America increased 6%, while Calvin Klein International posted a 1% drop in comparable store sales due to weakness in Europe. Revenues for Tommy Hilfiger brands increased 11% to $799 million.

The company's primary focus is on the integration of the Warnaco businesses. This is good news for shareholders because management can focus on organic growth and increasing margins. In terms of further acquisitions, CEO Emanuel Chirico told the NY Times, "I don't see us doing anything for three years."

Going forward
With all of the Calvin Klein brands under one roof, PVH can focus on expanding the Calvin Klein brand globally. To do this, the company is setting up regional design centers. The core design team remains in New York, but the company now has regional design teams that can react better to sales trends in their respective markets. PVH will now have regional design teams in Europe, Brazil and Hong Kong.

PVH will also be investing in marketing, stores, systems and its people. The goal is that by investing in its businesses now, the company can boost earnings by 15% to 20% annually starting in 2014. This year will effectively be a transition year for the company as it works on integrating Warnaco into the fold. PVH can then also work on paying down its debt from acquisitions starting in 2015. PVH has $4.28 billion in debt and $628 million in cash.

Competition
Two of PVH's biggest competitors are VF  (NYSE: VFC  )  and Ralph Lauren  (NYSE: RL  ) . Both companies own iconic brands and have strong businesses globally. VF owns Wrangler, Lee, North Face and Timberland. Ralph Lauren has its namesake brand as well as the Polo and Chaps brands.

VF has been focused on growth via acquisitions like PVH. This year VF will have cash flow topping $1.4 billion. The company plans to use $400 million to pay down debt which will bring its total debt down to $788 million. By paying down its debt, VF has the balance sheet and cash flow to look for its next acquisition target. Luckily for shareholders, VF isn't looking to grow at any price. According to Bloomberg, the company recently walked away from the acquisition of Australian company Billabong because it was too expensive.

VF is also focused on improving its gross margin. In the second quarter, the gross margin increased 240 basis points to 48.5%, which is an all-time record for VF. As gross margin improves, VF can invest more in product innovation, technology, supply chain improvements, and more direct-to-consumer initiatives.

Ralph Lauren just posted disappointing first quarter results. Net income for the quarter dropped 7% compared to last year's first quarter. Sales, however, rose 4%.

Going forward, the focus for Ralph Lauren is on increasing its direct-to-consumer business with its own retail stores, as well as online. The company just assumed direct control of its Australia and New Zealand stores from its former licensee. Ralph Lauren is also focused on its China business; it opened two new flagship locations in China, one in Hong Kong and one in Shanghai. According to Executive Vice President Jackwyn Nemerov on the company's earnings call, "China is one of the company's largest and most compelling long-term growth opportunities."

As for its online initiatives, Ralph Lauren just launched its e-commerce site in South Korea. This marks the 14th country with an e-commerce site. Over the past year, the company has invested $75 million to expand its e-commerce distribution centers in North America, Italy, Hong Kong, Tokyo and Seoul.

Foolish assessment
PVH is positioned great for the long-term. This year the company will integrate Warnaco, and it finally has complete control of the Calvin Klein brands. Combine this with its other iconic brands, particularly Tommy Hilfiger, and you have a recipe for growth and success. I see PVH outperforming both VF and Ralph Lauren over the long-term.

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