Conflicting Views on PVH Results

 | Dec 11, 2013 | 11:00 AM EST
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PVH (PVH) has me conflicted. The company beat the consensus estimate, but the quality of those earnings was low and management guided down for the fourth quarter.

I watched Jim Cramer interview PVH CEO Manny Chirico on Mad Money Monday night and I thought there were some positive signs going forward.

PVH reported on Monday night their third quarter revenues of $2.26 billion, up 37.5%. The company earned $2.30, $0.05 ahead of the consensus forecast.

But then management turned cautious on the fourth quarter. They forecast earnings per share of $1.40 vs. the consensus estimate of $1.53 on slightly less revenue. Investors were expecting something over $2.14 billion in revenue while management was thinking about $2.08 billion. The stock sold off after hours.

The growth in revenue mostly came from the addition of $503 million from the Warnaco business that was acquired in early 2013. There were a few bright spots in the quarter too. The Tommy Hilfiger business grew 10% and the Calvin Klein line jumped 19%.

While the company managed to grow revenues 37% in fiscal 2014, next year is a different story. Without acquisitions, PVH is only expected to grow revenue just 5.5%. And that's the problem. PVH is a deal machine and without deals, the apparel business is a mid-single digit grower. The consensus is looking for 6.5% growth in fiscal 2016. That's hardly exciting.

While Chirico mentioned the business was in great shape for the holidays, the jeans business -- which accounts for 15-to-20% of the company -- was weak. Some analysts also pointed out that PVH's largest customer, Macy's (M), reported a same store sales number of 3.5% for the third quarter, which should be a positive heading into the fourth quarter.

That's great, but how is management going to drive revenue growth higher than 5% or 6%? PVH does business in many parts of the world and it's very difficult to get every region to grow at the same time. I thought Chirico made a good case for better-than-expected results, but it seemed we would have to wait for the second half of next year to see anything concrete.

I'm conflicted on PVH. I recognize the company has a solid management team, but I just can't make a case for owning the stock right now. I think the stock will tread water until it becomes clear how the company can grow the top line. 

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