EU CONSUMER CYCLICALS: PVH: 2Q earnings
(Baa3/BBB- Pos)
Sales growth held in 2Q, but guidance suggests it will be short-lived. Gross margin weakness persisted, leaving FY EBIT margin guidance unchanged at 8.5%. The gross margin erosion should not be ignored and points to quality of sales. Part of the PVH+ plan was to shift toward higher-quality DTC channel but wholesale continues to make up half of sales. Net debt rose by $1bn y/y, partly reflecting front-loaded buybacks (done already) but also from $650m increase in recorded lease liabilities.
- 2Q sales at $2.2b, +1% and in line with guidance. Was +4% including FX tailwind.
- Tommy Hilfiger flat, CK +3%
- DTC flat (core EMEA up but offset by Americas & APAC weakness), Wholesale +2%
- Gross margin 57.7% (-240bps), better than guided 300bp fall
- continues to blame increased promotions, unfavourable mix, tariffs, freight costs
- adj. EBIT of $178m, -6% y/y. Statutory EBIT at $133m (-24% y/y) on $45m in restructuring costs mainly tied to severance costs. Ex. this SG&A expenses were flat.
- $561m buyback done YTD and does not expect any further purchases (did $525m LY, does not pay dividends)
FY25 (ending Jan) guidance is unch for:
- Flat to slight increase in sales (excluding the FX tailwind)
- within this 3Q guidance is for a slight decrease (ex. FX)
- adj. EBIT margin of 8.5% (-150bps y/y)
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FOREX: USD Bid Extends
No clear, fresh fundamental driver for the latest extension higher in the USD, with gold lower and S&P 500 e-minis closing the Asia-Pac opening gap higher. Meanwhile, benchmark European equity indices remain under pressure.
- U.S. President Trump has reiterated his ability to implement tariffs, earmarking a 15-20% “world tariff” range (in line with levels levied in recent negotiations), while shortening the deadline for Russia to agree a ceasefire truce with Ukraine (to 10-12 days from now).
- Elsewhere, there hasn’t been much in the way of negatives surrounding the Sino-U.S. trade meeting in Stockholm, although that only got underway this afternoon.
- On net, it looks like the watering down of some of the recent headwinds for the USD, along with Trump’s softening tone when it comes to the immediate future of Fed Chair Powell, is allowing some of the USD negativity unwind.
- Still, the broader USD (BBDXY) only trades back to levels that were registered last Monday.
- EUR/USD remains under the most pressure despite the U.S.-EU trade agreement, with the deal still deemed punitive enough to harm to EU, despite the avoidance of the worst-case scenario.
- EUR/USD registers lows of 1.1626, still some way above next support at the 50-day EMA (1.1559). a break there would pose a bigger threat to the bullish case in the pair.
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