As the holiday season started taking off, many retailers geared up their efforts by strengthening their products, increasing promotions, and advertising aggressively. Against these strategies, some retailers took up a different route to boost their top line, such as acquiring other players in the industry.
For example, PVH (NYSE:PVH) acquired Warnaco Group at the beginning of this year, which strengthened its third-quarter results. Although its results beat Mr. Market's expectations, PVH's lowered outlook disheartened investors.
Analyzing the numbers
Revenue jumped a whopping 37.5% versus last year to approximately $2.3 billion. One of the key drivers for the revenue increase was Warnaco's acquisition, which strengthened the performance of the Calvin Klein segment. Sales from Calvin Klein surged more than 100% to $800 million versus the year-ago period. Also, Calvin Klein's sales in North America have been growing remarkably, with comparable-store-sales growth of 3%.
Even the Tommy Hilfiger segment grew 10% to more than $900 million as sales from both domestic and international regions, especially Europe, increased compared to last year. Also, the segment benefited from the expansion in retail square-footage area and the sportswear business.
The retailer's earnings grew to $2.37 per share as compared to $2.27 per share in the year-ago quarter. Therefore, PVH witnessed growth across all segments and on both the top and the bottom lines.
However, there are many apparel retailers having a tough time attracting customers. Peer Guess? (NYSE:GES) reported a lackluster quarter recently as it witnessed declining demand for its products. Its revenue fell 7% as sales in North America, Europe, and China weakened. Its earnings also plunged 7% to $0.40 per share. One of the key reasons for weak performance was a lack of advertising and promotions.
Additionally, marketing efforts made by other retailers are snatching away customers from Guess? However, the company is trying to revive its business, especially in the under-developed markets. Also, it plans to better control its costs, which is expected to boost its earnings. However, the retailer still expects lower store traffic, which led it to reduce its revenue outlook for the current quarter.
Coming back to PVH, it is making a number of efforts to boost its revenue further. It has been taking measures to restructure its Heritage brands segment, which grew by 10% mainly due to the addition of Warner and Olga businesses. PVH was witnessing declining sales at its G.H. Bass division, which hampered sales from this segment. Therefore, the company decided to sell its Bass division.
In fact, the company sold off its Bass operations to G-III Apparel Group (NASDAQ:GIII) at the beginning of November so that it can concentrate on its lifestyle brands, namely Calvin Klein and Tommy Hilfiger. G-III Apparel, on the other hand, wanted to expand its retail presence by adding Bass' 160 stores. Also, G-III Apparel recently reported its third-quarter results, which beat the Street's expectations.
Along with a 23% jump in revenue and 18.5% increase in earnings per share, G-III Apparel raised its outlook for the year. It now expects revenue of $1.7 billion, much higher than the earlier projection of $1.6 billion. Hence, G-III expects the new business to be quite helpful in its growth.
PVH's efforts are not limited to the Heritage Brands division. It is also taking measures to upgrade the quality of Calvin Klein jeans, along with introducing new designs in order to lure customers. This should boost revenue from the segment further.
However, the apparel manufacturer lowered its revenue guidance for the fiscal year to $8.2 billion from an earlier projection of $8.2 billion. This is mainly because of the prevailing competitive environment wherein most of the retailers have increased their promotional efforts. Moreover, retailers have ramped up their marketing spend during the holiday season by providing discounts to customers so that they can attract more and more budget-conscious shoppers.
Although PVH lowered its outlook on revenue for the current quarter, the retailer is doing well on all fronts. All three segments have performed well because of the company's acquisition strategy. Moreover, its strategy of focusing on higher- margin business segments such as Calvin Klein and Tommy Hilfiger and the divestment of other unprofitable businesses such as G.H. Bass looks interesting. It is also trying to boost its sales by improving the quality and design of its products, such as jeans. Hence, the company is well placed to benefit from its moves as well as its newly acquired business.
Pratik Thacker has no position in any stocks mentioned. The Motley Fool recommends Guess?. 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.