Despite a tough economic environment, Phillips-Van Heusen (NYSE: PVH) appears rather unruffled.
After the close yesterday, the apparel company reported fourth-quarter earnings per share that just topped expectations and its own guidance. Shares had traded higher in a strong market in anticipation of the announcement. However, management lowered forecasts for the upcoming fiscal year based on economic concerns, prompting the stock to slip 3% in after-hours trading.
The top line rose 4.9%, though last year's quarter included an extra week. The wholesale sportswear and outlet-store businesses struggled, causing margins to fall 150 basis points in each segment as a result of markdowns to clean up inventory. Management still translated the modest revenue growth into a 17% earnings-per-share increase.
Fiscal-year guidance of $3.30 to $3.40 per share came in well below analysts' anticipated $3.47. The market's disappointment that Phillips-Van Heusen didn't extrapolate its solid quarter into a rosier full-year outlook is unfounded. The company would have much more to lose by missing future quarters than it stands to gain by talking up guidance. The media now widely discusses lower economic forecasts, and even the possibility of recession; Phillips would be imprudent to do anything but lower the bar.
Although it's under pressure, the company's near-50% gross margin attests to the strength of the company's brands and core businesses. This stable base allows Phillips-Van Heusen to undertake some ventures that offer decent growth prospects. Recently, it secured a license to make an apparel line for Timberland (NYSE: TBL), and granted a license for an IZOD apparel line to be marketed in India.
More aggressively, by extending licensing agreements for additional products, it has further expanded the mature but still strong Calvin Klein brand, which it co-owns with and licenses to Warnaco (Nasdaq: WRNC). Additionally, Phillips-Van Heusen is launching a new strategy to sell its White Label brand through upscale boutiques.
Some investors worry that these moves may overexpose and weaken the brand. However, licensing is a core strength for the company, and the Calvin Klein brand is extremely important and well-guarded.
Since last summer, Phillips-Van Heusen has shed 35% of its value, now sitting at roughly 11.3 times this year's earnings. It appears that economic concerns are already baked into the stock price. I think this represents a good value for a solid business.
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