What happened

PVH (PVH -0.58%) released second-quarter results on Tuesday that showed a strong pace of recovery underway for the owner of top apparel brands Calvin Klein and Tommy Hilfiger. Revenue increased 46% year over year, or 40% adjusted for currency changes, reaching $2.3 billion. 

Most importantly, the bottom line is tightening up very nicely, with earnings per share coming in at $2.51, up from a per-share loss of $0.72 in the year-ago quarter. The second-quarter performance was above management's expectations (and obviously investors' as well), and the stock was up 13.3% at 10 a.m. EDT on Wednesday.   

A customer shopping for clothes in a store.

Image source: Getty Images.

So what

PVH suffered revenue declines through most of calendar 2020, but the company started to roar back to life at the start of 2021, with revenue soaring 55% year over year in the first quarter, or 46% on a currency-neutral basis.

In previous quarters, management has discussed strengthening its brands, gaining profitable market share, and growing e-commerce. PVH is executing on this strategy. Revenue through digital channels grew 35% year over year and made up approximately a quarter of total revenue. 

On the first-quarter conference call in early June, CEO Stefan Larsson cited "a general feeling of optimism and excitement" from consumers shopping at stores. Larsson credited consumers' new interest to mix and match casual, stay-at-home clothing with the desire to get out and socialize for creating demand for PVH in the near term. 

Now what

While the reopening of the economy is providing PVH a huge boost, it's noteworthy that gross margin is on track to exceed 2019 pre-pandemic levels this year, which should trickle down to higher profits. 

Management cautioned that there remains uncertainty over the pandemic, particularly in North America. But its guidance calls for revenue to increase between 26% to 28% over 2020, with adjusted earnings per share expected to reach approximately $8.50. 

Apparel stocks have been popular reopening plays with investors, mainly because they were extremely cheap at the start of the year. PVH now trades at a forward price-to-earnings ratio of 14.1 based on 2021 guidance. That is usually considered a fair valuation for an established apparel company like PVH. Further gains will likely have to be driven by more margin improvement and earnings growth in 2022 and beyond.