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PVH’s revenue increased 2 per cent to $9.2 billion in 2023, ahead of its 1 per cent growth guidance, but it warned investors on Tuesday that 2024 would be even more challenging.
The company, which owns Tommy Hilfiger and Calvin Klein, said it expects 2024 revenue to decline 6 to 7 per cent compared to 2023. That’s “significantly below expectations”, as its prior consensus estimated a 1 per cent decline, said analyst Dana Telsey in a note. PVH also warned that Q1 revenue is likely to drop 11 per cent year-on-year, below consensus of a 4 per cent decrease. Shares tanked 20 per cent following the announcement.
Telsey said the “disappointing” 2024 outlook overshadowed PVH’s solid 2023 results. “PVH’s exposure to macro challenges in Europe and a cautious wholesale channel overall appear to be the primary factors in the weaker-than-expected outlook, as the company focuses on brand-accretive quality of sales, particularly in Europe,” she said.
In 2023, Europe delivered low single-digit revenue growth, while in the fourth quarter, revenues dropped low single digits compared to the prior year in the region. Consumer sentiment was low and wholesale partners were cautious, particularly in the UK and Germany, which are key markets for Tommy Hilfiger and Calvin Klein.
“This tougher European macro means we’re choosing to sacrifice sales growth in the near term to strengthen our brand position in the market for the long term,” CEO Stefan Larsson told investors. PVH is doing this by focusing on reducing excess inventory. Inventory levels decreased 21 per cent in Q4 as part of a plan to focus on higher quality sales. Continued inventory management will drive gross margin expansion, the company says.
Fourth-quarter revenues of $2.49 billion were flat year-on-year, exceeding the guidance of a 3 to 4 per cent decrease. PVH’s international businesses increased 4 per cent year-on-year with growth in the APAC region offsetting Europe. North American revenues were down 2 per cent.
“While a slowing and increasingly promotional European market is a concern and the outlook comes as a surprise, we continue to see evidence of improved underlying brand health, as DTC revenue increased 9 per cent in constant currency in the fourth quarter with growth posted across all regions,” Telsey said.
As it weathers the macroeconomic storm, the company is leaning into the PVH+ Plan, which launched in 2022 with five pillars: win with product; win with consumer engagement; win in the digitally-led marketplace; develop a demand and data-driven operating model; and drive efficiencies and invest in growth. As part of that plan, the company announced its intention to focus on core brands Tommy Hilfiger and Calvin Klein in 2021, and in 2023 it finalised the transaction to sell its Heritage Brand business to Authentic Brands Group. Tommy Hilfiger revenues increased 4 per cent in 2023, while Calvin Klein revenues increased 3 per cent.
Larsson said he expects the PVH+ Plan to directly translate to growth in Asia (APAC revenues grew 17 per cent in Q4) and North America in 2024, but the macro environment and weak consumer sentiment in Europe will remain a challenge.
Weak demand from wholesale partners sent wholesale revenues down 12 per cent, but this was offset by a 9 per cent DTC revenue growth. “We’re significantly reducing the number of digital platforms that we sell to,” Larsson said. “This will increase the quality of sales with our most important wholesale partners across all channels.”
“Our expectations for 2024 obviously make our 2025 target [of $12.5 billion] exceedingly difficult,” said Larsson. Nevertheless, he is confident in the PVH+ Plan, which he says is “absolutely the right strategy for us to drive sustainable long-term profitable growth”.
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