PVH (PVH)

Fashion conglomerate PVH (NYSE:PVH) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.6% year on year to $1.98 billion. Its non-GAAP profit of $2.30 per share was 2.2% above analysts’ consensus estimates.

Company Overview

Founded in 1881 by a husband and wife duo, PVH (NYSE:PVH) is a global fashion conglomerate with iconic brands like Calvin Klein and Tommy Hilfiger.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

PVH’s primary competitors include LVMH Moët Hennessy Louis Vuitton (Euronext:MC), Kering (Euronext:KER), Ralph Lauren Corporation (NYSE: RL), VF Corp (NYSE: VFC), and Hanesbrands Inc. (NYSE:HBI).

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, PVH struggled to consistently increase demand as its $8.68 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of poor business quality.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. PVH’s recent performance shows its demand remained suppressed as its revenue has declined by 2.1% annually over the last two years.

PVH also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 2.3% year-on-year declines. Because this number aligns with its normal revenue growth, we can see that PVH has properly hedged its foreign currency exposure.

This quarter, PVH reported modest year-on-year revenue growth of 1.6% but beat Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

PVH’s operating margin has been trending down over the last 12 months and averaged 6.6% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, PVH generated an operating margin profit margin of negative 16.7%, down 27.3 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

PVH’s EPS grew at a spectacular 23.4% compounded annual growth rate over the last five years, higher than its flat revenue. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

In Q1, PVH reported EPS at $2.30, down from $2.45 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.2%. Over the next 12 months, Wall Street expects PVH’s full-year EPS of $11.61 to grow 13.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

PVH has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.2%, subpar for a consumer discretionary business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

PVH historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.9%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, PVH’s ROIC averaged 2.4 percentage point increases each year. This is a good sign, and we hope the company can continue improving.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

PVH’s $3.73 billion of debt exceeds the $191 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $512.8 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. PVH could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope PVH can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We enjoyed seeing PVH beat analysts’ constant currency revenue and EPS expectations this quarter. On the other hand, its EBITDA missed and it lowered its full-year EPS guidance. Overall, this was a softer quarter. The stock traded down 5.3% to $76.50 immediately after reporting.

Updated: June 22, 2025 at 10:48 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own PVH, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping consumers, but in the case of PVH, we’re out. For starters, its revenue growth was weak over the last five years. And while its Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, the downside is its constant currency sales performance has disappointed. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

PVH’s P/E ratio based on the next 12 months is 4.9x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $91.73 on the company (compared to the current share price of $64.63).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.