Solid 1st-Quarter Sales Growth for PVH

We don't expect a meaningful change to our $144 fair value estimate, other than for the time value of money, after

The Tommy Hilfiger (44% of sales) and Calvin Klein (38%) brands continued to perform well, posting revenue growth of 21% (versus our 19% forecast) and 18% (17%), respectively. Once again, growth was driven by strength in international markets, where both brands saw a 25% sales lift. Results in North America were aided by a rebound in travel to the States, with Tommy posting 13% revenue growth, an acceleration from 5% last quarter (both periods comped against similar prior year declines). Equally impressive was Calvin Klein's 10% North American sales growth, a deceleration from 13.5% last quarter, but against a 9.5% tougher comparison.

PVH's bottom-line results were also healthy, with gross margin expansion driven by less promotion, international strength, and the timing benefit of the Chinese New Year. Mitigating this strength will be ongoing brand investment, which results in PVH maintaining its 2018 guidance for a 30-basis-point increase in operating margin (versus our estimate for a 20-basis-point improvement) to around 10%. We plan to maintain our forecast for 10.3% operating margins on average the next five years.

PVH adjusted its 2018 revenue growth outlook to around 6% from 7%, driven by slight reductions in Tommy Hilfiger (to 7% from 9%) and Calvin Klein (to 8% from 9%) sales growth. This strikes us as overly conservative, given the continued strength reported this past quarter. As a result, we don't expect much change to our 2018 consolidated sales growth forecast of 7%, or our 9% and 8% respective estimates for the Tommy Hilfiger and Calvin Klein brands in 2018.

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