The trade war between the United States and China continues to put pressure on retailers.
Calvin Klein and Tommy Hilfiger parent PVH Corp. became the latest casualty in the protracted tariffs spat between the world’s two largest economies. Despite posting first-quarter earnings that exceeded the high end of its guidance, the global fashion company’s stock plummeted more than 14% to $85.25 in Thursday midday trading.
PVH logged adjusted earnings per share of $2.46 on revenues of $2.36 billion, above Wall Street’s predictions of $2.44 a share on sales of $2.37 billion. However, it wasn’t enough to mollify investors. And CEO and chairman Emanuel Chirico cited weakened demand in the U.S. and China markets, which could further impact margins in the following quarter.
“Looking ahead, the volatile and challenging macroeconomic backdrop has continued into the second quarter, with particular softness across the U.S. and China retail landscape,” Chirico said in yesterday’s report.
This month, Washington increased levies from 10% to 25% on $200 billion worth of Chinese products, leading Beijing to retaliate with duties of 5% to 25% on $60 billion of U.S. goods. The Office of the U.S. Trade Representative also released a separate list of imports, including footwear, that could be hit with another proposed 25% hike in tariffs.
With about 20 percent of its U.S. production originating from China, PVH has already indicated that its brands would have to raise prices to make up for the mounting tariffs. (In addition to Hilfiger and Calvin Klein, the company’s portfolio also includes Van Heusen, Izod and Geoffrey Beene, as well as other owned and licensed brands.)
“The unfortunate thing about it is who’s going to be hurt by this is the consumer,” Chirico said in a November interview with CNBC. “Given that over half our sales are outside of China, it represents about 7% to 8% of our cost of goods sold” — or about $70 million of PVH’s business.
For the first quarter, Tommy Hilfiger’s revenues increased 4% to $1.1 billion, with international sales rising 4% to $680 million, thanks to a solid performance in Europe. In North America, the brand’s revenues climbed 3% to $372 million, with its wholesale business partially offset by a drop in same-store sales.
Meanwhile, revenues for Calvin Klein remained flat at $890 million, while its international sales dipped 2% to $466 million — partly attributed to the volatility in foreign currency rates and weakness in China, according to the firm. The fashion house’s North America revenues, however, grew 2% to $424 million during the period. (Calvin Klein memorably shuttered its flagship store on New York City’s Madison Avenue in January, a month after creative chief Raf Simons’ departure.)
“We remain confident that we are in a strong position to gain market share as we deliver against our strategic priorities,” Chirico added. “As we continue to invest in the strategic areas of the business that address the increasingly dynamic and ever-changing consumer landscape, while also taking a more nimble approach to react to emerging business trends, we see a significant opportunity to deliver long-term value for our stockholders.”
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