EU CONSUMER CYCLICALS: PVH; S&P moves to stable outlook
Apr-11 16:52
(Baa3 Pos/BBB- stable now)
We saw S&P the most likely to upgrade (if only looking at leverage). Looks like weak sales and threat of losing the 15% of EBITDA it has in China (was added to unreliable entity list) was enough for it to hold off.
- S&P confirms co does not have material imports from China into US (but will have most supply chain in Asia ex. China).
- It sees full loss of China business (15% of EBTIDA) having +0.2-0.3x leverage impact (we saw +0.4x). We see it currently g/n 2.3x/1.8x levered.
- Sees sales falling single digits and gross margin contracting by more than 100bps this year
- PVH is more optimistic guiding for FY revenue and adj. EBIT margins flat-to-up slightly
As we said after earnings ex. potential positive rating action (which looks absent now) near term catalyst do look skewed negative (4Q results were weak - as is 1Q guidance). PVH is one of the most uninteresting-on-levels among retailers.
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