Yale University Martin Wexler, Steven Hao, Stephen Oshman, Michael Simpson, Ayung Tseng April 2, 2009

Transcription

1 Yale University Martin Wexler, Steven Hao, Stephen Oshman, Michael Simpson, Ayung Tseng April 2, 2009

2 Ticker: PVH Target Price: $22 Market Price: $21 Investment Thesis: Source: Yahoo Finance 1. Resilient company margins during recession 2. Strong growth from international licensing 3. Healthy liquidity and strong balance sheet 2

3 2008 Revenue by Segment 2008 EPS Contribution 2008 Gross Margin by Segment Source: Company Documents and Student Estimation 3

4 Source: Company Documents and Student Estimation 4

5 Inventory Management Q4 08 wholesale and retail gross margin maintained Retail gross margin has declined 6% since peak time in 2007 US Distribution Channel 07' Sales Licens Macy's JCPenny Sears Kohl's Wal-Mart ($MM) ing (810) 's (1,067) (926) (1,003) (4,000+) Retail Calvin Klein 5,448 x x x IZOD 920 x x x x Van Heusen 859 x x x x ARROW 623 x x x Bass 301 x x Licensed x x x x Private Label x x x x x Source: Company Documents and Student Estimation Global Supply Chain Cost Saving Plan: contributes $0.4 per share 5

6 Change in Gross Margin of Key Players in last Recession Source: Company Documents Scenario Analysis on Length of Recession and Margins Case Target Price Margin Change Length of Recession Weight DCF Target Bull $ % Ends in 2009 Christmas 25% Base $ % Ends in 2010 Christmas 50% $23.86 Bear $ % Ends in 2011 Christmas 25% 6

7 100% Gross Margin: helps to mitigate US decline Pass Risks to Licensees: no working capital New Store Openings: contribute $1.49 per share Estimate $14M Currency Loss in 2009: about $0.27 per share Revenue Breakdown Revenue Growth by Region Source: Company Documents and Student Estimation 7

8 Strong Cash Flow to Weather Recession Inventory days at industry average 95 days Predicted to rise to 105 days in 2009 Estimated FCF $100M in 2009 Estimated $300M cash balance at end of 2008 Clean Balance Sheet Fixed amount of debt $399M, $150M to expire in 2011 Cut back in capex in the short term Actively looking for attractive acquisitions to gain market share 8

9 APV Valuation $23 in base case Public Comps Valuation $21 Median 2009 estimated TEV/EBITDA and forward P/E Catalysts for Higher Price Appreciation US inventory levels l and margin resilience Faster international economic recovery Market share gains from organic growth/ acquisitions 9

10 Initial PT Wholesaler Wholesaler Liscensee Longer Slower Currency Worst Case Discount Bankruptcy & Bankruptcy Recession Global Risk P.T. Consolidation Growth 10

11 Target price: $22 Investment Thesis: 1.Resilient company margins during recession 2.Strong growth from international licensing 3.Healthy liquidity and strong balance sheet 11

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13 Wholesale revenue growth Retail revenue growth Licensing revenue growth Nominal GDP growth Industry comp store growth US Coefficient Industry non comp store growth Canada Industry chain store growth PVH comp store growth adj. Europe Retail channel adjustment PVH non comp store growth adj. Asia Competition adjustment Seasonality adjustment New licensee/store opening adj. Seasonality adjustment PVH Retail revenue growth Seasonality adjustment PVH Wholesale revenue growth PVH Licensing revenue growth Appendix 1

14 Revenue Growth Projection for for Phillips Van Heusen Based on PVH fiscal year 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 08Dec 09Mar 09Jun 09Sep 09Dec 10Mar 10Jun 10Sep 10Dec 09Feb 09May 09Aug 09Nov 10Feb 10May 10Aug 10Nov 11Feb Wholesale revenue growth Nominal GDP growth 2.10% 0.64% 0.64% 1.64% 2.96% 4.12% 4.12% 4.12% 4.68% 5.09% 5.71% 5.25% Coefficient 84.73% 84.73% 84.73% 84.73% 90.47% 93.34% 93.34% 93.34% % % % % Industry chain store growth 1.78% 0.54% 0.54% 1.39% 2.68% 3.85% 3.85% 3.85% 5.51% 51% 5.99% 6.72% 6.60% 60% Retail channel adjustment 4.00% 4.00% 4.00% 4.00% 4.00% 3.00% 2.00% 1.00% 1.00% 2.75% 2.00% 2.00% Competition adjustment 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% Seasonality adjustment 2.79% 2.65% 4.48% 4.62% 2.79% 2.65% 4.48% 4.62% 2.79% 0.00% 0.00% 0.00% PVH Wholesale revenue growth 5.76% 1.56% 8.69% 1.26% 4.86% 2.75% 3.39% 6.71% 2.97% 7.99% 7.97% 7.85% Retail revenue growth Industry comp store growth 9.00% 9.00% 9.00% 7.20% 5.75% 5.75% 5.75% 5.75% 1.40% 0.14% 3.63% 3.63% Industry non comp store growth 2.64% 4.40% 4.40% 4.40% 3.82% 3.82% 3.82% 3.82% 4.36% 4.95% 6.48% 6.32% PVH comp store growth adj. 2.10% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% PVH non comp store growth adj. 3.00% 3.00% 3.00% 3.00% 3.00% 1.00% 1.00% 1.00% 1.00% 1.00% 2.00% 2.00% Seasonality adjustment 2.48% 3.64% 0.35% 0.81% 2.48% 3.64% 0.35% 0.81% 2.48% 0.00% 0.00% 0.00% PVH Retail revenue growth 8.98% 12.23% 8.25% 5.99% 3.45% 7.57% 3.58% 3.12% 3.44% 3.09% 7.10% 6.51% Licensing revenue growth Weights US 42.00% 4.21% 4.21% 4.21% 3.36% 2.07% 0.10% 1.10% 2.10% 5.76% 7.99% 7.97% 7.85% Canada 5.00% 4.21% 4.21% 4.21% 3.36% 2.07% 0.10% 1.10% 2.10% 5.76% 7.99% 7.97% 7.85% Europe 35.00% 4.21% 4.21% 4.21% 4.21% 3.68% 3.68% 3.68% 3.68% 2.62% 2.17% 0.45% 0.62% Asia 18.00% 6.00% 6.00% 6.00% 6.00% 9.50% 9.50% 9.50% 9.50% 6.41% 6.60% 7.05% 6.60% Asia new licensee/store opening adj % 20.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 20.00% 20.00% 20.00% Seasonality adjustment 2.11% 2.37% 3.65% 3.91% 2.11% 2.37% 3.65% 3.91% 2.11% 0.00% 0.00% 0.00% PVH Licensing revenue growth 3.34% 2.04% 3.32% 4.64% 6.84% 3.37% 2.56% 10.59% 9.59% 9.30% 8.77% 8.26% Appendix 2

15 Projected Income Statement for Phillips Van Heusen Dollars in millions, except per share Historical Fiscal Year Projected Fiscal Year E 2010E 2011E 2012E 2013E Revenues Wholesale , , , , , , ,440.2 Retail , , ,092.3 Calvin Klein Licensing Total Revenues 1, , , , , , , , , , ,965.2 Rev Growth 4.6% 16.3% 9.5% 16.0% 2.1% 4.0% 1.4% 6.3% 7.8% 7.4% Change tototaltotal revenue growth rate COGS , , , , , , , , ,406.4 SG&A , ,083.1 EBIT EBIT/Rev 4.3% 7.9% 10.9% 12.3% 12.8% 11.2% 5.6% 8.1% 15.9% 16.0% 16.0% EBIT Wholesale Retail (82.2) (41.5) Calvin Klein Licensing Corporate (15.9) (33.3) (41.0) (72.6) (58.3) (51.6) (51.6) (51.6) (51.6) (51.6) (51.6) Total EBIT Tax expense After tax EBIT growth 100.1% 49.0% 23.6% 24.5% 17.7% 69.2% 74.6% 148.1% 9.6% 9.0% After tax unusual items (5.5) 0.1 (0.6) (18.2) After tax interest expense Pref. dividends and other adj NI to common stock Weighted Avg. Diluted Shares Out Diluted EPS Growth 115.7% 23.8% 53.7% 78.5% 25.9% 57.0% 80.4% 138.8% 9.6% 9.0% Dividend per share Dividend EPS contribution Wholesale Retail (1.0) (0.5) Calvin Klein Licensing Corporate (1.4) (1.5) (2.3) (3.1) (1.8) (2.0) (0.6) (0.6) (0.6) (0.6) (0.6) Total Diluted EPS Appendix 3

16 Projected Income Statement for Phillips Van Heusen Dollars in millions, except per share Historical Fiscal Year Projected Fiscal Year E 2010E 2011E 2012E 2013E Ratios and Assumptions Revenue growth Wholesale 2.8% 23.1% 4.5% 23.6% 3.2% 2.6% 3.1% 8.0% 8.0% 7.9% Retail 6.0% 10.4% 13.7% 5.7% 4.5% 7.3% 2.3% 3.1% 7.1% 6.5% Calvin Klein Licensing 7.1% 12.0% 16.1% 27.2% 16.7% 1.7% 6.8% 9.3% 8.8% 8.3% COGS % of rev 58.9% 54.2% 53.3% 50.7% 50.9% 51.3% 54.2% 51.4% 47.6% 47.5% 47.4% SG&A % of rev 36.7% 37.9% 35.8% 36.9% 36.3% 37.7% 40.2% 40.2% 36.5% 36.5% 36.5% Gross Margin Wholesale 40.2% 46.3% 48.3% 49.4% 48.0% 49.1% 44.1% 44.7% 47.7% 47.7% 47.7% Retail 31.6% 38.0% 38.2% 45.5% 42.8% 36.6% 30.0% 34.1% 40.2% 40.2% 40.2% Calvin Klein Licensing 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Net Capex % of next year Rev Wholesale 0.8% 1.1% 1.0% 0.8% 2.0% 1.0% 1.0% 2.0% 2.0% 2.0% Retail 3.1% 4.0% 2.6% 3.2% 6.3% 3.5% 3.5% 4.0% 4.0% 4.0% Calvin Klein Licensing 0.7% 0.6% 0.6% 0.6% 1.4% 1.0% 1.1% 1.2% 1.3% 1.4% Corporate Depreciation % of total rev 0.1% 0.1% 0.1% 0.1% 0.4% 0.2% 3.0% 0.4% 0.4% 0.4% Tax rate 35.8% 32.6% 37.4% 37.5% 37.8% 38.1% 38.1% 38.1% 38.1% 38.1% Appendix 4

17 Projected Balance Sheet for Phillips Van Heusen Dollars in millions Historical Fiscal Year Projected Fiscal Year Cash And Equivalents Account receivables Inventory Prepaid Exp Deferred Tax Assets, Curr Other Current Assets Total Current Assets , , , ,673.6 Gross Property, Plant & Equipment Accumulated Depreciation (182.7) (209.7) (231.4) (252.8) (284.5) (373.7) (476.1) (581.4) (689.3) (799.0) Net Property, Plant & Equipment % Goodwill Other Intangibles Other Long Term Assets Total Assets 1, , , , , , , , , ,276.7 Accounts Payable Accrued Exp Unearned Revenue, Current Def. Tax Liability, Curr Total Current Liabilities Long Term Debt Pension & Other Post Retire. Benefits 15.8 Def. Tax Liability, Non Curr Other Non Current Liabilities Total Liabilities , , , , , , ,515.5 Pref. Stock, Convertible Common Stock Additional Paid In Capital Retained Earnings , , ,653.9 Treasury Stock (0.5) (0.6) (0.1) (200.3) (200.3) (200.3) (200.3) (200.3) (200.3) Comprehensive Inc. and Other (35.1) (32.0) (34.0) (32.2) (17.4) (41.7) (41.7) (41.7) (41.7) (41.7) Total Equity , , , , ,027.4 Total Liabilities And Equity 1, , , , , , , , , ,542.9 Appendix 5

18 Projected Balance Sheet for Phillips Van Heusen Dollars in millions Historical Fiscal Year Projected Fiscal Year Ratios and Assumptions Days in a year 365 AR outstanding days Inventory outstanding days AP outstanding days Avg cash conversion cycle Prepaid Exp. % of rev 1.6% 1.3% 1.0% 2.1% 2.2% 2.1% 2.1% 2.1% 2.1% 2.1% Deferred Tax Assets, Curr. % of rev 1.1% 0.8% 1.2% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Other Current Assets % of rev 0.0% 0.0% 0.0% 0.4% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% Accrued Exp. % of rev 8.1% 9.0% 8.4% 10.0% 9.7% 18.3% 18.3% 18.3% 18.3% 18.3% Unearned Revenue, Current % of rev 1.3% 1.4% 1.4% 1.5% 1.6% 0.0% 0.0% 0.0% 0.0% 0.0% Def. Tax Liability, Curr. % of rev 0.0% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% Def. Tax Liability, Non Curr. % of rev 12.6% 12.6% 13.4% 13.6% 10.2% 10.2% 10.2% 10.2% 10.2% 10.2% Other Non Current Liabilities of rev 7.2% 8.5% 6.8% 6.2% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% Increase in goodwill Increase in GW % of rev 0.9% 1.3% 3.4% 2.1% 2.1% 2.0% 2.0% 2.0% 2.0% Increase in tradenames (2.30) (2.30) Increase in tradenames % of rev 4.3% 0.0% 2.1% 0.1% 0.1% 1.0% 2.0% 2.0% 2.0% Depreciation i % of gross PP&E 16.4% 15.9% 16.6% 6% 16.1% 1% 16.6% 6% 15.0% 14.0% 13.0% 12.0% 11.0% Appendix 6

19 Discounted Cash Flow Valuation for Phillips Van Heusen Dollars in millions, except per share Historical Fiscal Year Projected Fiscal Year After tax EBIT Stock based compensation expense Depreciation and Amortization Change in working capital (16.5) (17.1) (3.5) (93.0) (288.0) 40.2 (19.6) (30.4) Change in other assets and liabilities (22.3) Cash flow from operations (161.6) Capital expenditures (32.0) (46.1) (37.5) (46.2) (102.6) (52.3) (47.7) (77.7) (84.0) (90.4) Addition to intangibles (84.6) (25.6) (114.1) (48.6) (48.6) (71.3) (96.4) (102.5) (110.4) Free cash flow to the firm (280.6) Growth% 267.3% 15.3% 16.8% 298.3% 144.8% 126.7% 127.3% 16.4% PV of FCF (242.7) Terminal value 1,982.1 PV of terminal value 1,110.4 Firm value with all equity 1,144.9 Debt tax shield 9.4 PV of debt tax shield 60.3 Estimated firm value 1,205.2 Shares outstanding 51.5 Estimated share price 23.4 Current price 17.8 Underpriced % 32% Assumptions Risk free rate 3.5% 30 year T Bond yield Beta capitaliq 5 year beta Market risk premium 7.0% historical avg and forward looking estimate Cost of equity 15.6% unlevered cost of equity for both equity and tax shield Terminal growth rate 5.1% US average growth rate Tax rate 38.1% Cost of debt, pretax 6.2% Debt amount ($ millions) Appendix 7

20 Dollars in millions Description Maturity Seniority Secured Converti ble Interest exp. Vanguard BBB Yield weighted remaining year avg interest Debentures, 7.75% due Senior Yes No $ % rate Senior Unsecured Notes, 7.25% due Senior No No $ % Senior Unsecured Notes, 8.125% due Senior No No $ % $ % 6.2% Appendix 8

21 Appendix 9

22 Appendix 10

23 Guess? Jones Apparel Group Kenneth Cole Perry Ellis Ralph Lauren VF Corp. Warnaco Group Appendix 11

24 Appendix 12