While it likely makes sense to be cautious when a stock trades at a high valuation multiple, the case of PVH Corp. might raise some eyebrows – at least at first sight. The company owns two well-known apparel brands, has been constantly profitable, is generating healthy free cash flow and even buying back its own shares aggressively at a low valuation, seemingly generating strong shareholder value. Shares, however, only trade at a 6x price to earnings ratio. I’ll tell you while this likely is still not a bargain.
Summary and key takeaways from today’s Weekly
– PVH Corp. is a dinosaur among apparel companies. The company exchanged its brand portfolio over time.
– The current focus is on Calvin Klein and Tommy Hilfiger, two perceived lifestyle brands.
– However, the stock performance is terrible – not just for one reason. Despite the low PE ratio, the stock is a clear avoid.
Buying low and selling high – that’s the textbook rule for investing success.
PVH Corp. (ISIN: US6936561009, Ticker: PVH), the company behind well-known apparel brands Calvin Klein and Tommy Hilfiger, has seen its shares falling by 44% over the last twelve months.
The company itself is not that well known. But those who know it are aware that this is a true cannibal (eating itself, i.e. buying back equity). PVH is buying back its own stock like clockwork. The pace recently even accelerated. Over the last twelve months, share count is down by an impressive 14%.
This is a figure many companies do not even achieve over a decade.
Yet, the market does not like the company. From a contrarian standpoint, this could be interpreted as a good sign. Little interest, usually means little competition and the potential to buy into a stock while the majority does not care.
The bad news is, the stock likely is not as cheap as it looks, respectively comes with some risks that are hidden under the surface.
If you’re looking for attractive, overlooked stock ideas the majority has a blind eye on, look no further. I am offering compelling non-mainstream cases in concise 12-page member-exclusive reports.
Want to outsmart the market? Get active now! Become a supporting paid-member and receive my best stock ideas (plus updates).
Join me and my members on our journey to beat the markets!
both as per 25 June 2025 market close – since August 2022
PVH: A strange case of a low valuation, but still not cheap enough
Apparel companies with relatively modern brands likely have been in business only for a few decades (at best), right? Most likely yes, if we are talking about for example Ralph Lauren (1967), Nike (1964 as Blue Ribbon Sports, rebranded to Nike in 1971) or Gap (1969).
But there are exceptions. Take Levi’s (1853) or Burberry (1856).
Or PVH Corp. which was founded in 1881 by Moses Phillips and his wife Endel in Pottsville, Pennsylvania. The company started as a small operation and began selling shirts which were hand-sewn by Moses’ wife and their daughters for local coal miners.
The company merged with D. Jones & Son, becoming Phillips-Jones Corporation, and later renamed Phillips-Van Heusen (PVH) in 1957 after acquiring the Van Heusen brand. Van Heusen became famous for its patented soft self-folding collar (1919, see here and here) which was invented by an immigrated Dutchman.
The company went public on the NYSE in 1923 and grew through innovations like collar-attached shirts. If you remember, in the distant past, collars were separate and had to be attached to the shirt. The Van Heusen brand was owned through the second quarter of 2021. PVH currently licenses Van Heusen, but also other brands like Nike for certain product categories.
Today’s PVH mainly consists of Calvin Klein and Tommy Hilfiger.
Calvin Klein was acquired in 2002 for 430 mn. USD plus additional licensing fees (see here). In 2013, PVH further consolidated control by acquiring Warnaco Group for 2.9 bn. USD, securing Calvin Klein’s jeans and underwear licenses. Tommy Hilfiger was bought in 2010 for 3 bn. USD from private-equity firm Apax Partners (see here).
In recent years, PVH announced a strategic shift to prioritize Calvin Klein and Tommy Hilfiger, due to stronger global appeal and higher growth potential. Heritage brands, including Van Heusen, were less aligned with this vision and faced declining demand and lower margins.
PVH retains some licensing revenue from Van Heusen but has largely exited its direct management to focus on its global lifestyle brands Calvin Klein and Tommy Hilfiger.
As written above, both lifestyle brands, Calvin Klein and Tommy Hilfiger, were acquired for in total about ~6.3 bn. USD.
If you now look at the current market cap of PVH as a whole, this looks a bit “Klein” (= “small” for my non-German speaking readers).
A first indicator that something’s not right. For the sake of completeness, here’s the full long-term chart of PVH.
The first impression might be that this is a solid long-term investment with bigger swings up and down. I agree with the latter part, but the performance is weak. 314% over c. 30 years is a bit meager. Not to mention that the current price level matches almost exactly the high of 2007, if you look closely.
Almost 20 years and back to zero, so to speak.
If we now look from a bird’s eye view at certain ten-year data, we can quickly answer why this likely is the case.
Starting with sales. Practically flat over ten years.
During the last years, there was the portfolio reshuffling with certain brands having left the shelf. Okay. That’s why gross margins have been rising, which is good. This proves that PVH is focussing on brands and items with more attractive economics and likely higher selling prices.
While gross margins expanded by 6 percentage points from 52% to 58% per last fiscal year 2025, operating margins remained broadly flat – until FY 2024 at least.
The latest print showed weaker figures, though.
What happened?
According to the latest earnings release the consumer environment is weak, promotional activity is high and the further outlook is uncertain due to the aforementioned, but also due to tariff uncertainty.
Comparing last quarter’s performance with the previous year, gross margins have fallen – from 61% to below 59%. Inventory being up 19% could be a tactical move to circumvent tariffs, so I’ll leave it with that, but this position needs to be monitored as too much inventory could enforce more promotional activity.
Higher sales but at the same time lower margins is worrying as it implies sales growth is being “bought” with discounts to present growth, but sacrificing profitability.
In the same token, PVH wrote down (impaired) 480 mn. USD of goodwill from historical acquisitions, mainly in the Asia Pacific region. Where is not even that relevant. What is relevant is that this implies the affected brands (PVH didn’t specify, only blamed higher discount rates) cannot hold their previous value.
While not the end of the world, 480 mn. USD is quite a chunk against the market cap of 3 bn. USD.
The earnings outlook was lowered. Non-GAAP figures do not include the goodwill write-down. A fat minus from 12.40–12.75 to 10.75–11.00 USD per share.
The same press release confirmed that the previously announced accelerated share buyback of 500 mn. USD (see here) has been finished. Back the envelope, 500 mn. USD against 3 bn. USD results in 15–16% of equity – this is very substantial and was meant to express management’s confidence.
And to appease shareholders of course.
The first reaction was positive after the buyback was announced as shares jumped by 16%, practically pricing in the lower share count.
However, shares are trading now again where they were before the buyback was announced. Thus, a shot in the air as the buyback is finished, share count is lower, but the share price isn’t up.
Something else was “accomplished” as PVH used 350 mn. USD of cash on hand and 150 mn. USD of short-term debt to conduct the repurchase. Net, that’s a negative. I dislike such short-sighted actions only to create some short-lived appeasement while the underlying business has issues.
What has worked “well”, is that the balance sheet now has more debt into a declining business environment. Net financial debt (pre leasing) rose from ~1.8 bn. USD to 2.1 bn. USD. At the same time, cash holdings halved.
Magic, isn’t it?
Now, let’s have a look at operating and free cash flow.
Long-term again, no growth. Compared to FY 2024, a step decline. The figures over the last twelve months are on par with those per fiscal-year end 2025.
About 600 mn. USD in FCF (using current numbers) against 2.1 bn. USD in net debt results in quite a substantial leverage of more than 3x.
Unfortunately, the free cash flow already went for the buyback. Over the last twelve months, PVH even spent almost 900 mn. USD to repurchase their own equity.
While share count has been falling long-term, especially the last buyback has a very bitter taste to it.
Over the last ten fiscal years, share count dropped from 83 mn. to 57 mn. or by 32%.
This was before the big buyback. The latest quarter report shows on the front page that the latest share count is 48 mn. per 28 May 2025.
48 mn. shares means share count is down even by 42% over a bit more than the last ten years.
Has it helped shares?
To make matters worse, a massively lower share count and a massively lower share price result in – a MASSIVELY lower market cap.
Exactly the opposite of what a successful buyback does with a successful company.
Hard to believe, but in 2018 the market cap was 12.5 bn. USD. Even in 2024, it was still around 8 bn. USD. In 2015 or ten years ago, the market cap was about 10 bn. USD or more than 3x higher (!) than today.
Now, it’s just 3 bn. USD.
Lots of effort for nothing, one could say. You certainly could hear such a statement from me. I am not hiding behind the bush. This is a disastrous performance.
I have more to say, though.
Over the last decade – and this again does not include the recent accelerated buyback – PVH spent more than the current entire market cap on buybacks (~3.3–3.4 bn. USD vs. 3 bn. USD).
Especially aggressively into the recently declining stock which declined anyway.
We could already close here.
I do not care whether management believes to have iconic products or brands. Not only is the current business momentum weak and at risk of seeing a steeper decline due to weak consumer confidence and discretionary spending. I am a bit skeptical and worried about the massively higher inventory.
Capital management is ugly. The recent buyback certainly had good intentions, but was a waste of money which strongly worsened balance sheet quality.
Last but not least, the final nail in the coffin was the following. PVH managed to land on China’s List of Unreliable Entities, allegedly due to violating “normal market trading principles”.
Unfortunately, the Asia-Pacific region has the highest operating margins among the owned brands (ex-licensing) with 22.5% (EMEA: 16%, Americas only 10%).
If the China business, which is likely significant inside APAC, saw any damage due to the above, a significant part of PVH’s operating profit would vanish. That’s a substantial risk on top.
It’s not enough to lure me in with a seemingly low PE ratio which leaves out debt.
I think the current PE ratio of 6x is not cheap, but even warranted.
There’s plenty of risk, earnings momentum is negative, capital management is bad, the outlook is weak / uncertain and on top the China risk.
I do not even know what the bull thesis shall be based on this analysis. Honestly, I think no one would care if these brands disappeared in irrelevance, similar to Michael Kors. These are legacy brands that worked relatively well in unproblematic times. Now is the stress-test with an unclear outcome, but big risks.
No thank you.
Conclusion
PVH Corp. is a dinosaur among apparel companies. The company exchanged its brand portfolio over time.
The current focus is on Calvin Klein and Tommy Hilfiger, two perceived lifestyle brands.
However, the stock performance is terrible – not just for one reason. Despite the low PE ratio, the stock is a clear avoid.
By becoming a Premium or Premium PLUS Member, you get instant access to all my already published research reports as well as several updates.
Likewise, you qualify for eight, respectively four more exclusive reports with my best investment ideas plus updates on the featured businesses over the next twelve months.