PVH(US:PVH)2022-12-07 16:00PART I -- FINANCIAL INFORMATION Item 1 - Financial Statements This section presents the unaudited consolidated financial statements for the thirteen and thirty-nine weeks ended October 30, 2022, and the comparative prior year periods, including detailed notes on accounting policies and significant events Consolidated Statements of Operations This table provides a comparative overview of the company's revenues, profits, and net income for the thirteen and thirty-nine weeks ended October 30, 2022, and prior year periods | Metric | Thirteen Weeks Ended Oct 30, 2022 (in millions) | Thirteen Weeks Ended Oct 31, 2021 (in millions) | Thirty-Nine Weeks Ended Oct 30, 2022 (in millions) | Thirty-Nine Weeks Ended Oct 31, 2021 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,280.8 | $2,332.5 | $6,535.5 | $6,725.0 | | Gross Profit | $1,274.2 | $1,345.1 | $3,732.4 | $3,907.8 | | Goodwill Impairment | $417.1 | $— | $417.1 | $— | | (Loss) Income Before Taxes | $(232.8) | $352.6 | $112.4 | $773.3 | | Net (Loss) Income | $(186.7) | $279.7 | $61.7 | $561.2 | | Diluted EPS | $(2.88) | $3.89 | $0.92 | $7.77 | Consolidated Balance Sheets This table presents the company's financial position, including assets, liabilities, and equity, as of October 30, 2022, and comparative prior periods | Metric (in millions) | Oct 30, 2022 | Jan 30, 2022 | Oct 31, 2021 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $457.0 | $1,242.5 | $1,298.7 | | Inventories, net | $1,821.2 | $1,348.5 | $1,379.6 | | Goodwill | $2,214.0 | $2,828.9 | $2,894.2 | | Total Assets | $11,405.9 | $12,396.8 | $12,816.0 | | Long-Term Debt | $2,109.1 | $2,317.6 | $2,605.2 | | Total Stockholders' Equity | $4,822.8 | $5,288.8 | $5,171.7 | Consolidated Statements of Cash Flows This table details the cash inflows and outflows from operating, investing, and financing activities for the thirty-nine weeks ended October 30, 2022, and the prior year period | Cash Flow Activity (in millions) | Thirty-Nine Weeks Ended Oct 30, 2022 | Thirty-Nine Weeks Ended Oct 31, 2021 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(275.7) | $583.2 | | Net cash (used) provided by investing activities | $(181.9) | $52.2 | | Net cash used by financing activities | $(285.0) | $(975.0) | | Decrease in cash and cash equivalents | $(785.5) | $(352.7) | Notes to Consolidated Financial Statements These notes provide detailed explanations of accounting policies, significant financial events, including goodwill impairment, the Russia business exit, and share repurchase activities - The company decided to exit its Russia business in Q2 2022 due to the war in Ukraine, resulting in pre-tax noncash impairment charges of $43.6 million for long-lived assets during the first thirty-nine weeks of 20222930 - A noncash goodwill impairment charge of $417.1 million was recorded in Q3 2022, primarily driven by a significant increase in discount rates, affecting Calvin Klein North America ($162.6 million), Calvin Klein International ($77.3 million), and Tommy Hilfiger North America ($177.2 million) segments70 - The company initiated a cost savings plan in August 2022 to reduce global office people costs by approximately 10% by the end of 2023, expecting over $100 million in annual savings, with initial pre-tax costs of $16.7 million for severance recorded in Q3 2022160161 - During the first thirty-nine weeks of 2022, the company purchased 5.1 million shares of its common stock for $326.3 million under its stock repurchase program, with $896.6 million remaining available for future repurchases as of October 30, 2022156 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting headwinds from the war in Ukraine, inflation, and foreign currency volatility, while outlining the PVH+ strategic plan for future growth Results of Operations This section details a 2% revenue decline in Q3 2022, impacted by negative currency effects and the Russia exit, alongside gross margin contraction and a significant goodwill impairment charge - The PVH+ Plan, introduced in April 2022, is the company's multi-year strategy focused on brand, digital, and direct-to-consumer growth through five key drivers: product, consumer engagement, digital marketplace, data-driven operations, and efficiency208 - The war in Ukraine led to a decision to exit the Russia business, resulting in a revenue reduction of approximately $37 million in Q3 and $92 million year-to-date, with the full-year 2022 revenue impact estimated at $140 million209211212 - Inflationary pressures negatively impacted results through increased costs and a slowdown in consumer demand, leading to a more promotional environment, partially mitigated by implemented price increases214215 Key Financial Metrics | Metric | Q3 2022 vs Q3 2021 | YTD 2022 vs YTD 2021 | | :--- | :--- | :--- | | Total Revenue | -2% (includes -9% currency impact) | -3% (includes -7% currency impact) | | Gross Margin | 55.9% (down 180 bps) | 57.1% (down 100 bps) | | SG&A as % of Revenue | 47.6% (up 60 bps) | 48.9% (up 130 bps) | Liquidity and Capital Resources This section analyzes the decrease in cash and cash equivalents due to share repurchases and negative operating cash flow, while highlighting the company's strong available borrowing capacity - Cash from operating activities was a use of $276 million for the first nine months of 2022, a significant decrease from the $583 million provided in the prior year period, primarily driven by an increase in inventories and lower net income275 - The company repurchased $326 million of its common stock in the first nine months of 2022 and expects total repurchases of approximately $400 million for the full year289290 - As of October 30, 2022, the company had $457 million in cash and approximately $1.0 billion of available borrowing capacity under its debt facilities272 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and significant foreign exchange risks, with over 60% of 2021 revenue from outside the U.S., anticipating substantial translational and transactional FX impacts on revenue and net income - A 10 basis point change in short-term interest rates would impact annual interest income by approximately $0.5 million, and a similar change in the variable rate on euro-denominated debt would impact annual interest expense by about $0.4 million314 - Foreign currency translation is expected to decrease 2022 revenue by approximately $670 million and net income by $75 million317 - The transactional impact of foreign currency is expected to reduce 2022 net income by approximately $25 million and is projected to have a greater negative impact in 2023, including an estimated 100 basis point reduction in gross margin320321 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 30, 2022, with no material changes to internal control over financial reporting, despite ongoing SAP S/4 implementation - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period327 - No material changes to internal control over financial reporting occurred during the quarter, with the company noting its ongoing multi-year SAP S/4 implementation is expected to strengthen controls over time328329330 PART II -- OTHER INFORMATION Legal Proceedings The company is involved in legal proceedings, but management believes these will not materially adversely affect its financial position - Management does not expect current litigation to have a material adverse effect on the company's financial position332 Risk Factors This section confirms no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended January 30, 2022 - No material changes have been made to the company's risk factors as of October 30, 2022, from those disclosed in the last Annual Report333 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's repurchase of 1,901,551 shares of its common stock at an average price of $54.68 per share during the third quarter of 2022 Stock Repurchases in Q3 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 1 - Aug 28, 2022 | 366,782 | $66.31 | | Aug 29 - Oct 2, 2022 | 900,090 | $53.87 | | Oct 3 - Oct 30, 2022 | 634,679 | $49.09 | | Total Q3 2022 | 1,901,551 | $54.68 | - As of October 30, 2022, the maximum approximate dollar value of shares that may yet be purchased under the company's stock repurchase program is $896.6 million334 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and required CEO and CFO certifications