PVH Corp. Reports 2020 Fourth Quarter and Full Year Results and Provides 2021 Outlook

admin March 31, 2021

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Fourth quarter revenue was in line with the Company’s guidance despite more extensive lockdowns throughout Europe than previously anticipated:
- Revenue decreased 20% to $2.090 billion (fourth quarter) and decreased 28% to $7.133 billion (full year) compared to the prior year periods
- Revenue through digital channels grew 57% (fourth quarter) and 43% (full year), with sales through its directly operated digital commerce businesses up 68% (fourth quarter) and 69% (full year) compared to the prior year periods
- Digital penetration as a percentage of total revenue doubled in 2020 compared to 2019
- EPS on a GAAP basis was $(0.81) (fourth quarter) and $(15.96) (full year)
- EPS on a non-GAAP basis was $(0.38) (fourth quarter) and $(1.97) (full year)
- EPS on a GAAP and non-GAAP basis include an unplanned $0.13 negative impact due to an unfavorable settlement of a multi-year tax audit from an international jurisdiction
Liquidity was over $3.0 billion as of year-end, including $1.7 billion of cash on hand, of which $400 million was used in March 2021 to make a voluntary term loan payment
Inventory was down 12% at year-end 2020 compared to the prior year

NEW YORK–(BUSINESS WIRE)–$pvh #4Q2020–PVH Corp. [NYSE: PVH] reported its 2020 fourth quarter results.

Non-GAAP Amounts:

Amounts stated to be on a non-GAAP basis exclude the items that are defined or described in greater detail near the end of this release under the heading “Non-GAAP Exclusions.” Reconciliations of amounts on a GAAP basis to amounts on a non-GAAP basis are presented after the “Non-GAAP Exclusions” and identify and quantify all excluded items.

CEO Comments:

Commenting on these results, Stefan Larsson, Chief Executive Officer, noted, “We delivered fourth quarter revenue in line with expectations despite more extensive lockdowns in Europe, as we successfully navigated the uncertainty and unprecedented impacts caused by the pandemic to drive towards an accelerated recovery. I want to thank our teams around the world for their tireless efforts this year.”

Mr. Larsson, added, “We remain focused on connecting our core strengths to where the consumer is going – with our biggest brands Calvin Klein and TOMMY HILFIGER, in how we are super charging e-commerce, through our casual assortments, and how we are taking market share in our international businesses. As we look forward, we will increasingly continue to shift our business globally towards these channels and categories. In addition, we executed disciplined expense management, significantly improved our inventory position, and ended the year with over $3 billion in liquidity. By leveraging the power of PVH, I am confident that together, we will drive brand relevance and cost efficiencies and deliver long-term sustainable growth – and do it in a way that drives fashion forward – for good.”

Fourth Quarter Review:

The Company’s business continued to be impacted negatively by the COVID-19 pandemic in the fourth quarter 2020, with the level of impact varying by region and channel.

Direct to Consumer: Total direct to consumer revenue for the fourth quarter declined 20% compared to the prior year period, which included a 68% increase in digital commerce. All regions and brand businesses continued to experience strong digital growth and the Company continued to experience positive overall trends in China. Approximately 70% of Company-operated stores in Europe and approximately 75% of Company-operated stores in Canada were closed temporarily during the quarter as a result of the virus resurgences there.

Wholesale: The Company’s wholesale revenue for the fourth quarter declined 19% compared to the prior year period, which included a double digit increase in the Company’s sales to the digital businesses of its traditional and pure play wholesale customers.

Inventory: The Company continued to tightly manage its inventory, which decreased 12% as of the end of 2020 compared to the prior year. The Company is carrying approximately $75 million of basic inventory into Spring 2021, a decrease from the Company’s prior projection of approximately $100 million.

Fourth Quarter Consolidated Results:

Fourth quarter revenue decreased 20% to $2.090 billion (decreased 23% on a constant currency basis) compared to the prior year period. The revenue decrease was due to:

A 16% decrease (20% decrease on a constant currency basis) in the Tommy Hilfiger business compared to the prior year period, including a 28% decrease in Tommy Hilfiger North America revenue and a 10% decrease (17% decrease on a constant currency basis) in Tommy Hilfiger International revenue, which includes the impact of temporary store closures for much of the quarter as a result of the extensive lockdowns throughout Europe.
A 17% decrease (20% decrease on a constant currency basis) in the Calvin Klein business compared to the prior year period, including a 25% decrease in Calvin Klein North America revenue and a 10% decrease (16% decrease on a constant currency basis) in Calvin Klein International revenue, which includes the impact of temporary store closures for much of the quarter as a result of the extensive lockdowns throughout Europe.
A 41% decrease in the Heritage Brands business compared to the prior year period, which included a 17% decline resulting from the sale of the Company’s Speedo North America business.

Loss per share on a GAAP basis was $(0.81) for the fourth quarter of 2020 compared to a loss per share of $(0.93) in the prior year period. These results include the amounts for the applicable period that are excluded from loss per share and earnings per share on a non-GAAP basis for these periods.

Loss per share on a non-GAAP basis was $(0.38) for the fourth quarter of 2020 compared to earnings per share of $1.88 in the prior year period.

Earnings before interest and taxes on a GAAP basis for the quarter was $26 million compared to a loss before interest and taxes of $(96) million in the prior year period. Included in earnings before interest and taxes for the fourth quarter of 2020 were $2 million of net costs consisting of (i) $59 million of noncash store asset impairments resulting from the impact of the COVID-19 pandemic on the Company’s business and the impact of a shift in consumer buying trends from brick and mortar stores to digital channels, (ii) $8 million of costs in connection with the planned exit from the Heritage Brands Retail business announced in July 2020, consisting of $5 million of severance and $3 million of accelerated amortization of lease assets and other costs, and (iii) a $65 million actuarial gain recognized on retirement plans. Included in loss before interest and taxes for the prior year period were costs of $246 million consisting of (i) a $142 million noncash loss related to the Speedo transaction and the resulting deconsolidation of the net assets of the Speedo North America business, (ii) a $98 million actuarial loss recognized on retirement plans and (iii) $6 million of costs related to the Australia acquisition. Earnings before interest and taxes on a non-GAAP basis for these periods, as discussed below, exclude these amounts.

Earnings before interest and taxes on a non-GAAP basis for the quarter decreased to $28 million compared to $150 million in the prior year period. The decrease was driven by the impact of the COVID-19 pandemic, including the revenue decline discussed above. Earnings for the fourth quarter of 2020 benefited from cost savings resulting from the North America workforce reduction announced in July 2020 and COVID-related government payroll subsidy programs in international jurisdictions, as well as reductions in all discretionary spending categories. Partially offsetting these savings were additional expenses associated with COVID-related health and safety measures, principally in our stores and warehouses.

Net interest expense on a GAAP basis increased to $34 million from $30 million in the prior year period. Included in net interest expense for the fourth quarters of 2020 and 2019 were expenses of $3 million and $6 million, respectively, resulting from the remeasurement of a mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis for these periods exclude these amounts. Net interest expense on a non-GAAP basis increased to $32 million from $24 million in the prior year period, primarily due to the impact of the issuance of an additional €175 million of 3 5/8% senior notes in April 2020 and $500 million of 4 5/8% senior notes in July 2020.

The effective tax rate on a GAAP basis for the fourth quarter of 2020 was (608.5)% as compared to 45.5% in the prior year period. The effective tax rate in 2020 included a $33 million tax expense from the remeasurement of certain of the Company’s net deferred tax liabilities in connection with the “2021 Dutch Tax Plan.” The effective tax rate in 2019, which reflects an income tax benefit on the pre-tax loss in the fourth quarter of 2019, included a $28 million tax benefit related to the write-off of deferred tax liabilities in connection with the Speedo transaction. The effective tax rate on a non-GAAP basis for these periods exclude these amounts. The effective tax rate on a non-GAAP basis for the fourth quarter of 2020 was (717.6)% as compared to (8.5)% in the prior year period. Included in the effective tax rate on a non-GAAP basis for the fourth quarter of 2020 was a tax expense in connection with an unfavorable settlement of a multi-year tax audit from an international jurisdiction. The effective tax rate on a non-GAAP basis in the prior year period included a tax benefit from the favorable settlement of a multi-year tax audit from an international jurisdiction.

Full Year 2020 Consolidated Results:

The Company’s business during 2020 was impacted significantly by the COVID-19 pandemic, resulting in an unprecedented decline in revenue and earnings, including as a result of $1.021 billion of pre-tax noncash impairment charges recognized during the year.

Revenue for 2020 decreased 28% to $7.133 billion (decreased 29% on a constant currency basis) compared to 2019. The revenue decrease was due to:

A 23% decrease in the Tommy Hilfiger business compared to 2019, including a 41% decrease in Tommy Hilfiger North America revenue and a 13% decrease in Tommy Hilfiger International revenue.
A 28% decrease in the Calvin Klein business compared to 2019, including a 43% decrease in Calvin Klein North America revenue and a 16% decrease in Calvin Klein International revenue.
A 44% decrease in the Heritage Brands business compared to 2019, which included a 12% decline resulting from the sale of the Company’s Speedo North America business.

Revenue for 2020 included a 69% increase in sales through the Company’s directly operated digital commerce businesses, driven by strong growth in all regions and brand businesses, which partially offset the decline in revenue through its other distribution channels.

Loss per share on a GAAP basis was $(15.96) for 2020 compared to earnings per share of $5.60 in 2019. These results include the amounts for the applicable period that are excluded from loss per share and earnings per share on a non-GAAP basis for these periods, including the $1.021 billion of pre-tax noncash impairment charges mentioned above.

Loss per share on a non-GAAP basis was $(1.97) for 2020 compared to earnings per share of $9.54 in 2019.

Loss before interest and taxes on a GAAP basis for 2020 was $(1.072) billion compared to earnings before interest and taxes of $559 million in 2019. These results include the amounts for the applicable period that are excluded from loss before interest and taxes and earnings before interest and taxes on a non-GAAP basis for these periods, including the $1.021 billion of pre-tax noncash impairment charges mentioned above.

Loss before interest and taxes on a non-GAAP basis for 2020 was $(37) million compared to earnings before interest and taxes of $931 million in 2019. The decrease was driven by the impact of the COVID-19 pandemic, including the revenue decline discussed above.

Net interest expense on a GAAP basis for 2020 increased to $121 million from $115 million in 2019. Included in net interest expense for 2020 and 2019 were expenses of $5 million and $9 million, respectively, resulting from the remeasurement of a mandatorily redeemable non-controlling interest that was recognized in connection with the Australia acquisition. Net interest expense on a non-GAAP basis for these periods exclude these amounts. Net interest expense on a non-GAAP basis increased to $116 million from $106 million in 2019, primarily due to the impact of the issuance of an additional €175 million of 3 5/8% senior notes in April 2020 and $500 million of 4 5/8% senior notes in July 2020.

The effective tax rate on a GAAP basis for 2020 was 4.7% as compared to 6.5% in 2019. The effective tax rate on a non-GAAP basis for 2020 was 7.9% as compared to 14.0% in 2019.

2021 Outlook:

The Company is providing its 2021 outlook despite the significant uncertainty due to the COVID-19 pandemic globally and, as such, it could be subject to material change. The Company’s 2021 outlook does not contemplate any new store closures, new lockdowns, or extensions of current lockdowns beyond what is already known. In addition, the Company’s 2021 outlook does not contemplate further supply chain disruptions, including any greater impact beyond the minimal impact currently expected from the shipping disruption occurring as a result of the temporary blockage of the Suez Canal. The Company’s 2021 results could differ materially from its current outlook as a result of the occurrence of any of these uncontemplated events.

The Company expects its 2021 revenue and earnings will continue to be impacted negatively by the pandemic, particularly in the first quarter due to ongoing store closures, predominantly in Europe. Despite these store closures in Europe, the Company expects its international businesses to exceed 2019 pre-pandemic revenue levels in the first half of the year. The North America businesses are expected to remain challenged throughout 2021, as international tourism, which is the source of a significant portion of regional revenue, is not expected to return to any significant level until the end of the year. In addition, both the Company’s GAAP and non-GAAP outlook reflect approximately $20 million of estimated operating losses associated with the wind down of the Heritage Brands Retail business in the first half of the year.

The Company continues to tightly manage its inventory and expects gross margin to improve in 2021 compared to 2020, due in large part to a reduction in promotional selling as inventory levels are significantly lower at the end of 2020.

The Company also took actions beginning in 2020 that will continue into 2021 to manage its cost structure proactively, including reducing operating expenses and reallocating resources to support strategic growth areas of the business. As part of these actions, in 2021, the Company will reduce its workforce in certain international markets and reduce its real estate footprint, including reductions in office space and select store closures. These actions are in addition to the previously announced actions taken by the Company to streamline its North American operations to better align its business with the evolving retail landscape, including a reduction in its North America office workforce by approximately 12% and the exit from its 162 store Heritage Brands Retail business by mid-2021.

Full Year Guidance

Revenue in 2021 is projected to increase 22% to 24% (increase 19% to 21% on a constant currency basis) as compared to 2020.

The Company currently projects that 2021 earnings per share on a GAAP basis will be approximately $5.00 compared to a loss per share of $(15.96) in 2020. The Company currently projects that 2021 earnings per share on a non-GAAP basis will be approximately $6.00 compared to a loss per share of $(1.97) in 2020.

The Company estimates that the 2021 effective tax rate will be in a range of 17.5% to 19.5%.

The Company’s estimate of 2021 earnings per share on a non-GAAP basis excludes (i) approximately $70 million of costs expected to be incurred in connection with actions to streamline its organization through reductions in its workforce in certain international markets and to reduce its real estate footprint, including reductions in office space and select store closures, and (ii) approximately $21 million of costs expected to be incurred in connection with the planned exit from the Heritage Brands Retail business announced in July 2020.

First Quarter Guidance

Revenue in the first quarter of 2021 is projected to increase 42% to 44% (increase 34% to 36% on a constant currency basis) compared to the prior year period.

The Company currently projects that first quarter 2021 earnings per share on a GAAP basis will be in a range of $0.28 to $0.31 compared to loss per share of $(15.37) in the prior year period. The Company currently projects that first quarter 2021 earnings per share on a non-GAAP basis will be in a range of $0.80 to $0.83 compared to loss per share of $(3.03) in the prior year period.

The Company estimates that the first quarter 2021 effective tax rate will be approximately 50% on a GAAP basis and approximately 40% on a non-GAAP basis.

The Company’s estimate of first quarter 2021 earnings per share on a non-GAAP basis excludes (i) approximately $45 million of costs expected to be incurred in connection with actions to streamline its organization through reductions in its workforce in certain international markets and to reduce its real estate footprint, including reductions in office space and select store closures and (ii) approximately $10 million of costs expected to be incurred in connection with the planned exit from the Heritage Brands Retail business announced in July 2020.

Please see the section entitled “Full Year and Quarterly Reconciliations of GAAP to Non-GAAP Amounts” at the end of this release for further detail and reconciliations of GAAP to non-GAAP amounts discussed in this section.

Non-GAAP Exclusions:

The discussions in this release that refer to non-GAAP amounts exclude the following:

Pre-tax costs of approximately $70 million expected to be incurred in 2021 in connection with actions to streamline the Company’s organization through reductions in its workforce in certain international markets and to reduce its real estate footprint, including reductions in office space and select store closures, of which approximately $45 million is expected to be incurred in the first quarter.
Pre-tax costs of approximately $21 million expected to be incurred in 2021 in connection with the planned exit from the Heritage Brands Retail business announced in July 2020 and expected to be completed by mid-2021, of which approximately $10 million is expected to be incurred in the first quarter.
Pre-tax noncash impairment charges of $1.021 billion recorded in 2020, primarily resulting from the impact of the COVID-19 pandemic on the Company’s business, including $933 million related to goodwill and other intangible assets, $75 million related to store assets, and $12 million related to an equity method investment, of which $962 million was recorded in the first quarter and $59 million was recorded in the fourth quarter.
Pre-tax costs of $7 million incurred in the first quarter of 2020 in connection with a consolidation within the Company’s warehouse and distribution network in North America.
Pre-tax noncash net loss of $3 million recorded in the first quarter of 2020 related to the April 2020 sale of the Company’s Speedo North America business to Pentland Group PLC, the parent company of the Speedo brand (the “Speedo transaction”) and the resulting deconsolidation of the net assets of the Company’s Speedo North America business.
Pre-tax expense of $5 million recorded in 2020 resulting from the remeasurement of a mandatorily redeemable non-controlling interest that was recognized in connection with the Company’s acquisition of the approximately 78% interest in Gazal Corporation Limited (“Gazal”) that it did not already own (the “Australia acquisition”), of which $4 million of income was recorded in the first quarter, $5 million of expense was recorded in the second quarter, $1 million of expense was recorded in the third quarter and $3 million of expense was recorded in the fourth quarter.
Pre-tax costs of $40 million incurred in 2020 related to the reduction in the Company’s North America office workforce announced in July 2020 (the “North America workforce reduction”), primarily consisting of severance, of which $38 million was recorded in the second quarter and $1 million was recorded in the third quarter.
Pre-tax costs of $29 million incurred in 2020 in connection with the planned exit from the Heritage Brands Retail business announced in July 2020 and expected to be completed by mid-2021, consisting of $15 million of severance, $7 million of noncash asset impairments and $7 million of accelerated amortization of lease assets and other costs, of which $12 million was incurred in the second quarter, $9 million was incurred in the third quarter and $8 million was incurred in the fourth quarter.
Pre-tax gain of $65 million recorded in the fourth quarter of 2020 related to the recognized actuarial gain on retirement plans.
Discrete tax expense of $33 million recorded in the fourth quarter of 2020 related to the remeasurement of certain of the Company’s net deferred tax liabilities in connection with the enactment of legislation in the Netherlands known as the “2021 Dutch Tax Plan,” which became effective on January 1, 2021.
Pre-tax costs of $103 million incurred in 2019 related to the restructuring associated with the strategic changes for the Calvin Klein business announced in January 2019 (the “Calvin Klein restructuring”), consisting of a noncash lease asset impairment resulting from the closure of the Company’s flagship store on Madison Avenue in New York, New York, other noncash asset impairments, severance, contract termination and other costs, and inventory markdowns, of which $70 million was incurred in the first quarter, $29 million was incurred in the second quarter and $3 million was incurred in the third quarter.
Pre-tax costs of $55 million incurred in the first quarter of 2019 in connection with the closure of the Company’s TOMMY HILFIGER flagship and anchor stores in the U.S., primarily consisting of noncash lease asset impairments.
Pre-tax costs of $6 million incurred in the first quarter of 2019 in connection with the refinancing of the Company’s senior credit facilities.
Pre-tax costs of $60 million incurred in the second quarter of 2019 in connection with the agreements to terminate early the licenses for the global Calvin Klein and Tommy Hilfiger North America socks and hosiery businesses in order to consolidate the socks and hosiery businesses for all Company brands in North America in a newly formed joint venture and to bring in house the international Calvin Klein socks and hosiery wholesale businesses.
Pre-tax noncash gain of $113 million recorded in the second quarter of 2019 to write up the Company’s equity investments in Gazal and PVH Brands Australia Pty. Limited, a jointly owned and managed joint venture of the Company and Gazal, (“PVH Australia”) to fair value in connection with the Australia acquisition.
Pre-tax costs of $21 million incurred in 2019 in connection with the Australia acquisition and the Company’s acquisition of the Tommy Hilfiger retail business in Central and Southeast Asia from the licensee of the business, primarily consisting of noncash valuation adjustments, of which $7 million was incurred in the second quarter, $9 million was incurred in the third quarter and $6 million was incurred in the fourth quarter.