PVH (Baa3 Pos, BBB- Pos) {PVH US Equity}

The parent of brands Tommy Hilfiger & Calvin Klein, has received support from S&P after giving weak guidance at earnings last week. Equities remain 20% lower since, pricing on €500m Long 5Y expected tomorrow, FV to follow.

• S&P has been quick to come (after the close on Friday) with view that it remains unch on BBB- Pos. after company disappointed markets with FY24 guidance of -6-7% decline in constant currency sales this year - inclusive of a -2% impact from sale of Heritage brands & -1% on calendar year effects. S&P was assuming low-single digit growth.
• Its noting weak outlook was partly on wholesale channel (see Levi with similar weak guidance in Europe Wholesale last week) and notes PVH is moving away from this channel towards higher-margin DTC business that should see margin uplift - yet company disappointed on that front too, guiding to flat operating margin to FY23's 10.1% (its kept medium-target unch at 15%, though may take a "year or 2 longer" from original 2025 target).
• Re. exposure to Europe slow down - its currently 48% of sales (29% in US) - weakness in local macro will be felt for it more than close peers like VF & Levi (Europe 25-30% for both). H&M still the most exposed at 60%+ of sales.
• BS remained tidy at gross leverage 1.8*, net leverage 1.2*, liquidity not a issue with $700m in cash and $1.2b in revolvers, no maturity wall till '26 that has $1.1b of maturities. Dividends are minimal, buybacks last year totalled $550m - significant given it had only $725m in FCF. Uncertain what pace it will continue - it has sizeable room in the current program that runs through to 2028.