When does currency matter and when doesn't it?
We will know with the reaction today to PVH's (PVH) otherwise very good earnings, gross margins and sales which, when Forex is backed out, would have actually amounted to what I think is better than expected guidance versus analysts' expectations.
But when you base guidance on a euro at $1.32 and it has a huge fall to $1.21 -- and where it stops nobody knows-- how are you supposed to raise numbers? How can you not temper expectations, as PVH's Manny Chirico told me? If 50% of your business is done in a currency from hell, what are you supposed to do?
Now, here's the question. If PVH really gets hit on this issue -- and I think that it is the real reason for the guidance cut, not softness in business -- what will happen to all of these industrials that are being taken up right now when they are faced with the same currency issue?
That's why so much is on the line with this company as it is really the first of the period to have such broad international exposure.
Now, it could cause people to revert to the domestic spend plays: G-III Apparel Group (GIII) vs. PVH so to speak, GIII being the company that launched 11 points because its domestic apparel business IS its business. It does make Target (TGT) and Macy's (M) and Dillard's (DDS) and Nordstrom (JWN) more attractive. It's why you have to stick with Darden (DRI), Popeye's (PLKI), DinEquity (DIN) and Chipotle (CMG) if not Fiesta Group (FRGI) and Jack in the Box (JACK).
But let's see what the day brings us. I think that PVH is one cheap stock given the product portfolio, the investments already made and possibility that, with inventories lean and the quarter already started progressing better, we could be getting a nice upside surprise from the numbers we heard last night from the company.
