In contrast to what they're expecting out of rival Perry Ellis (NASDAQ:PERY) (see accompanying article), analysts have high hopes for Phillips-Van Heusen (NYSE:PVH) tomorrow afternoon. In preparation for the big day, here's a quick rundown of what Wall Street expects, what the company's already done, and what you might want to look for in Tuesday's report on Q1 2006.

What analysts say:

  • Buy, sell, or waffle? Ten analysts follow Phillips, with seven rating the stock a buy and three more a hold.
  • Revenues. $507.4 million is tomorrow's sales target, which is an 8% improvement over last year's first quarter.
  • Earnings. Pro forma profits are predicted to come in at $0.73 per share, which is a 74% improvement.

What management says:
You'll notice that I cite pro forma profit expectations above -- not out of any love for the concept, but rather because this is the language the analysts speak when predicting Phillips' earnings. In an unexpected twist, the company itself explained in an April press release that its results under generally accepted accounting principles will actually exceed the pro forma number. Specifically, Phillips expects a "one time pre-tax gain of $31 million associated with the sale by the Company of its minority interests in certain entities that operate various Calvin Klein jeans and sportswear businesses in Europe and Asia" to boost its profits under GAAP. But being a true "one time" event, Phillips is excluding this extra profit from its pro forma guidance.

Also being excluded are certain costs related to ex-CEO Mark Weber leaving the company, some expenses incurred to close down a factory in Alabama, and various costs associated with the firm's recent secondary offering of stock. Add all those "one time" items back into the mix, and you'll wind up with the company's GAAP profit prediction of $0.84 to $0.85 per share.

What management does:
Don't be surprised that profits are growing so much faster than sales. The chart below explains why this is happening. Simply put, Phillips has, over the last 18 months, become nearly three times as profitable as it was a year and a half ago. That's what happens when you boost a 2% net margin by 390 extra basis points.

Margins %

10/04

1/05

5/05

7/05

10/05

1/06

Gross

44.4

45.8

45.5

45.9

46.5

46.7

Op.

6.6

8.7

9.7

10.3

11.2

11

Net

2

3.6

4.7

5.1

5.7

5.9

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Reviewing Phillips' Q4 report two months ago, my fellow Fool Stephen Simpson expressed pretty much the same sentiments I just did above. But he also made a point of noting that Phillips didn't provide a cash flow statement along with its earnings release back then. Since we've already covered everything else, let's take a look at what happened on that missing document, which eventually showed up attached to a 10-K filing with the SEC.

There we see that Phillips reported generating $152 million in free cash flow last year, a 58% improvement over the $96.4 million generated in fiscal 2004, and more than five times the cash profits the company created in fiscal 2003. Why did the company hide its cash flow statement last quarter? You've got me. But I can't help but notice that $152 million is nearly twice the $82.5 million that Phillips had to report earning under GAAP.

Maybe management thought it immodest to boast about its true profitability?

Competitors:

  • Perry Ellis
  • Polo Ralph Lauren (NYSE:RL)
  • Timberland (NYSE:TBL)

Customers:

  • J.C. Penney (NYSE:JCP)
  • Dillard's (NYSE:DDS)
  • Wal-Mart (NYSE:WMT)

Wal-Mart is a Motley Fool Inside Value recommendation. Take the newsletter dedicated to top-shelf stocks at bargain-basement prices for a 30-day free spin.

Fool contributor Rich Smith does not own shares of any company named above.