PVH Corp. (PVH) Updates FY21 Outlook in Connection With Announcement of the Sale of Its IZOD, Van Heusen, ARROW and Geoffrey Beene Brands
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PVH Corp. [NYSE: PVH] announced today that it is updating its full year outlook in connection with its earlier announcement that it has entered into a definitive agreement to sell certain intellectual property and other assets of its Heritage Brands business to Authentic Brands Group (“ABG”) and will exit its Heritage Brands business. The cash purchase price for the transaction is approximately $220 million, subject to a customary adjustment. The transaction, which includes the IZOD, Van Heusen, ARROW and Geoffrey Beene brand trademarks and is expected to close in the third quarter of 2021, is subject to customary closing conditions, including regulatory approval. The Company intends to use the net proceeds from the transaction to repurchase shares of its common stock.
The Company also announced it intends to reinstate the dividend on its common stock.
As a result of the transaction, the Company now projects that revenue for the full year 2021 will increase 22% to 24% (increase 19% to 21% on a constant currency basis) as compared to 2020. The Company’s prior guidance, which included the full year revenue attributable to the assets being sold, was a projected increase in full year 2021 revenue of 24% to 26% (increase of 21% to 23% on a constant currency basis) as compared to 2020.
The Company reiterates its guidance for the second quarter of 2021 of an increase of 34% to 36% (increase of 29% to 31% on a constant currency basis) compared to the prior year period.
- GAAP Basis: The Company now is projecting earnings per share on a GAAP basis for the full year 2021 of approximately $6.60. The projected full year 2021 earnings per share on a GAAP basis includes an estimated pre-tax net gain of approximately $100 million as a result of the transaction, as well as the estimated tax effect of the net gain and the other amounts for the period described below under the heading “Non-GAAP Exclusions.” Earnings per share on a non-GAAP basis, as discussed below, excludes these amounts. The Company’s prior guidance for the full year 2021 earnings per share on a GAAP basis was approximately $5.50.
The Company’s projected earnings per share on a GAAP basis of $0.79 to $0.82 for the second quarter of 2021 is unchanged.
The Company’s projected effective tax rate on a GAAP basis of 17.5% to 19% for the full year 2021 and 44% to 46% for the second quarter of 2021 is unchanged.
- Non-GAAP Basis: While the Company expects the transaction to be slightly dilutive to its 2021 earnings per share on a non-GAAP basis, the Company reiterates its earnings per share on a non-GAAP basis guidance of approximately $6.50 for the full year 2021 and $1.15 to $1.18 for the second quarter of 2021.
The Company’s projected effective tax rate on a non-GAAP basis of 17.5% to 19% for the full year 2021 and 36% to 38% for the second quarter of 2021 is unchanged.
The discussions in this release that refer to non-GAAP amounts exclude the following:
- Pre-tax costs of $70 million incurred and expected to be incurred in 2021 in connection with actions to streamline the Company’s organization through reductions in its workforce, primarily in certain international markets, and to reduce its real estate footprint, including reductions in office space and select store closures, consisting of noncash asset impairments, severance, and contract termination and other costs, of which $43 million was incurred in the first quarter and approximately $15 million is expected to be incurred in the second quarter.
- Pre-tax costs of $21 million incurred and expected to be incurred in 2021 in connection with the exit from the Heritage Brands Retail business announced in July 2020 and expected to be completed by mid-2021, consisting of severance and other termination benefits, accelerated amortization of lease assets and contract termination and other costs, of which $8 million was incurred in the first quarter and approximately $13 million is expected to be incurred in the second quarter.
- A pre-tax net gain of approximately $100 million expected to be recorded in 2021 as a result of the sale of certain intellectual property and other assets of its Heritage Brands business to ABG as described above.
- The estimated tax effects associated with the above pre-tax items, which are based on the Company’s assessment of deductibility. In making this assessment, the Company evaluated each item that it had identified above as a non-GAAP exclusion to determine if such item is taxable or tax deductible, and if so, in what jurisdiction the tax expense or tax deduction would occur. All items above were identified as either primarily taxable or tax deductible, with the tax effect taken at the applicable income tax rate in the local jurisdiction, or as non-taxable or non-deductible, in which case the Company assumed no tax effect.
As a supplement to the Company’s GAAP results, the Company presents constant currency revenue information, which is a non-GAAP financial measure. The Company presents results in this manner because it is a global company that transacts business in multiple currencies but reports financial information in U.S. dollars. Foreign currency exchange rate fluctuations affect the amounts reported by the Company in U.S. dollars with respect to its foreign revenues. Exchange rate fluctuations can have a significant effect on reported revenues. The Company believes presenting constant currency revenue information provides useful information to investors, as it provides information to assess how its businesses performed excluding the effects of changes in foreign currency exchange rates and assists investors in evaluating the effectiveness of the Company’s operations and underlying business trends in a manner that is consistent with management’s evaluation of business performance.
The Company calculates constant currency revenue information by translating its foreign revenues for the relevant period into U.S. dollars at the average exchange rates in effect during the comparable prior year period (rather than at the actual exchange rates in effect during the relevant period).
Constant currency performance should be viewed in addition to, and not in lieu of or as superior to, the Company’s operating performance calculated in accordance with GAAP. The constant currency revenue information presented may not be comparable to similarly described measures reported by other companies.
Please see section entitled “Full Year Reconciliations of GAAP to Non-GAAP Amounts” later in this release for reconciliations of GAAP to non-GAAP amounts.
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