Source: PVH Corp

Apparel and accessories maker PVH Corp (NYSE:PVH), home to the Calvin Klein and Tommy Hilfiger brands, has been a big winner for investors over the past five years, evidenced by a cumulative stock price gain of more than 200% over that time period. The company has profited as its brands became more popular around the world, which has translated into consistently higher sales tallies. This trend has also benefited competitors like Ralph Lauren (NYSE:RL).

However, 2014 has been more of a struggle for PVH, with its stock price down by a double-digit amount; this mostly occurred because of a negative market reaction to a profit shortfall in its latest fiscal quarter, which led management to slightly lower its financial outlook for the year.  On the upside, though, the company's largest unit, Tommy Hilfiger, continued to perform well during the period with positive sales momentum in its major geographies.  So is PVH a good bet at current prices?

What's the value?
PVH is one of the world's largest apparel manufacturers with top market share in the dress shirt and neck wear product categories.  The company has benefited by successfully turning its Calvin Klein and Tommy Hilfiger units into lifestyle brands, which has allowed it to tap into higher-margin, non-apparel areas through the licensing channel.  The net result for PVH has been a strong upward trajectory for its top line over the past five years.

In its latest fiscal year, it was more of the same for PVH, evidenced by a 35.5% increase in revenue that was a function of positive sales gains for its Calvin Klein and Tommy Hilfiger brands, as well as gains from its merger with competitor Warnaco, one of the largest licensees of the Calvin Klein brand. 

While the merger negatively affected PVH's gross margin due to Warnaco's focus on lower-priced product lines, it gave PVH greater control over Calvin Klein's product mix and added key distribution relationships in international growth markets like Brazil and China.  More importantly, the deal should make PVH's back office operations more efficient, especially in the purchasing area, which paves the way for potential gains in operating profitability in the future.

Looking into the crystal ball
Unfortunately, those hoped-for efficiency gains were nowhere to be seen in PVH's latest fiscal quarter, evidenced by a decline in adjusted operating profitability that culminated in a double-digit drop in operating income.  To be fair, though, PVH isn't the only company that is dealing with profitability challenges, as Ralph Lauren seems to have its own challenges in that department.

The iconic apparel manufacturer, with brands that include Polo and Chaps, turned in a very mixed performance in its latest fiscal year. While its top line rose a solid 7.7% thanks to a double-digit increase in its wholesale channel, the company was hurt by a highly promotional sales environment in its North America segment, which unsurprisingly led to a drop in its overall gross margin.  The net result for Ralph Lauren was a decline in its adjusted operating income that stifled its stock price.

A better way to go
Given PVH's near-term profitability challenges, investors may want to look for a better way to play the popularity of the Calvin Klein and Tommy Hilfiger brand names, like with G-III Apparel Group (NASDAQ:GIII). The company is one of the major licensees of the Calvin Klein and Tommy Hilfiger brands, but it also has a growing portfolio of owned brands which now account for roughly one-third of its total sales.

Generating a greater percentage of sales from its owned brands has allowed G-III Apparel Group to improve its gross margin over the past few years, and this ultimately led to higher operating profit and cash flow for the company.  More importantly, it has provided the company with a solid balance sheet that has enabled management to go after selective, value-added acquisitions, including its recent purchase of the under-performing G.H. Bass apparel brand from PVH.

The bottom line
PVH has certainly been a good investment choice over the past five years, but future appreciation is looking like it might be a tougher slog, partially because the company has grown much larger than it was five years ago. A better bet may be G-III Apparel Group, which benefits from its close association with PVH's key brands and owns some brands that may provide the next wave of profit growth for its shareholders.