PVH's Brand Power Outshines Near-Term Hurdles: A Compelling Long-Term Play

The apparel industry is no stranger to turbulence, but few companies have as much brand equity as PVH Corp. (PVH), the owner of Calvin Klein and Tommy Hilfiger. Despite grappling with margin pressures from tariffs, inventory shifts, and a challenging macroeconomic backdrop, PVH's iconic brands are proving resilient. For long-term investors, this presents a rare opportunity to buy a high-quality asset at a discounted valuation—currently trading at a P/E of just 6.1x. Here's why PVH's stock is a compelling buy, even as it navigates short-term headwinds.

Brand Momentum Amid Headwinds

PVH's first-quarter results highlight a stark contrast between its brands' growth potential and the operational challenges weighing on profitability. Calvin Klein and Tommy Hilfiger, two of the world's most recognizable lifestyle brands, continue to drive sales:

• Calvin Klein: The brand's Q1 revenue held steady despite macroeconomic pressures, buoyed by the viral success of its Icon Cotton Stretch franchise and the Bad Bunny campaign. This collaboration, which generated over 1 billion social media impressions, exemplifies PVH's ability to leverage high-impact marketing to sustain relevance.
• Tommy Hilfiger: Revenue rose 3%, with standout performance in EMEA and the Americas. Collaborations like its partnership with F1® The Movie underscore the brand's knack for blending lifestyle storytelling with pop culture moments.

Regionally, the Americas and EMEA regions delivered strong growth (7% and 5%, respectively), offsetting a 13% decline in APAC due to Lunar New Year timing and China's weak consumer spending. While APAC's struggles are concerning, the broader takeaway is clear: PVH's brands remain potent engines of demand.

Margin Pressures and Strategic Responses

The near-term challenges are undeniable. Gross margins dipped to 58.6% from 61.4% in the year-ago period, pressured by tariffs, promotional activity, and inventory shifts. The full-year non-GAAP operating margin is now projected at 8.5%, down from 10% in 2024. Compounding these issues is the $1.05 per share drag from U.S. tariffs—a problem PVH is addressing through supply chain reconfigurations and cost-saving initiatives.

Yet, PVH's PVH+ strategy offers a clear path to stabilization and recovery:

1. Share Repurchases: The company executed a $500 million accelerated share repurchase (ASR) in Q1, repurchasing 5.4 million shares. With a P/E of 6.1x, this underscores management's confidence in the stock's value.
2. Cost Efficiency: The Growth Driver 5 initiative aims to reduce operational costs through centralized processes and automation. Q1 restructuring costs of $13 million reflect progress toward this goal, with further savings expected in 2025.
3. Inventory Optimization: While inventory rose 19% year-over-year, this was a strategic move to improve stock availability and support second-half sales—critical for brands reliant on seasonal demand.

Operational Adjustments and Long-Term Outlook

The key to PVH's future lies in its ability to align cost discipline with brand-building. Management has explicitly prioritized:
- Product Quality: Ensuring Calvin Klein and Tommy Hilfiger remain synonymous with premium basics and lifestyle innovation.
- Marketplace Execution: Sharpening distribution strategies to capitalize on wholesale growth while improving digital commerce (e.g., 3% growth in U.S. e-commerce).
- Mitigation of Tariffs: PVH expects tariff impacts to ease in the second half of 2025, with mitigation actions offsetting $0.20 of the $1.05 drag by year-end.

While the full-year EPS guidance was lowered to $10.75–$11.00 (down from $12.40–$12.75), the revised forecast still reflects a company with strong earnings potential once operational adjustments take hold. Crucially, the stock's valuation leaves room for upside: At current prices, PVH trades at less than 10x 2025 EPS estimates—a stark contrast to peers like Tapestry (16x) and Nike (25x).

The Investment Case

PVH's stock is a classic “value trap” for the impatient but a “compounder” for those with a long view. The near-term hurdles—tariffs, inventory, and macroeconomic uncertainty—are real but manageable. Meanwhile, the company's brands are enduring, with Calvin Klein and Tommy Hilfiger commanding a combined $10 billion+ in annual revenue.

Key Risks: APAC recovery, trade policy shifts, and supply chain disruptions could prolong margin pressures. However, these risks are factored into the stock's valuation.

The Bottom Line: At a P/E of 6.1x, PVH offers a rare chance to buy a global lifestyle brand leader at a discount. Investors willing to overlook short-term volatility should view this as a multi-year opportunity. The stock's resilience in Q1—beating EPS estimates despite macro headwinds—hints at the underlying strength of its brands. For the patient investor, PVH is a buy.

This analysis assumes no insider information and is not financial advice. Always conduct your own research before making investment decisions.