Merrill Lynch/BAM is upgrading Phillips-Van Heusen (NYSE:
PVH) to Buy from Neutral with a $54 price target (prev. $45)
The analyst expects a re-acceleration in CK licensing (roughly 45% of EBIT) will be supported by moderating FX headwinds and the continued growth of the global Calvin Klein brand, led by Warnaco (the largest licensee of CK at ~$2bn in retail). CK's Fall launch schedule includes: CKJ "Body Jean" (and a strong emphasis on the "skinny" silhouette), "CK Fresh" fragrance, and relaunch of "Euphoria".
Retail Outlet (40% of sales) trends also improving
Retail outlet comps should continue to accelerate into easing comparisons, with Sept comps up +3 to +4% vs. Aug up +2% (compared to 2Q09 comps down -3% and 3Q09 guid down -2 to -3%). Traffic trends are also improving to down (2)% to (4)% versus prior down (8)% to (10)%. Retail margins should be an opportunity, particularly in 4Q09 (given the lack of clearance inventory). Longer term, segment profitability could be supported by store reduction plans, with a potential to reach 7% to 9% margins (vs. 2009 forecast of 3-4% segment margin)
Moderate is In - Wholesale continues to gain share
Wholesale is well positioned to gain share, as the increasing focus on value for nationally recognized branded product should benefit Van Heusen, Arrow, IZOD. These core brands, priced at value price points of $19.99 to $29.99, should continue to gain share from tertiary brands as well as private label. Merrill anticipates door expansion in these brands, as dep't stores shift to the more moderate price point brands with an all door rollout of Van Heusen in 4Q09/1Q10. Timberland apparel, positioned as the opening price collection sportswear brand on the floor ($29.99-$39.99), should also gain share, with 600 doors this Fall (from 350).
Notablecalls: PVH is one of the premier retail names and with Merrill Lynch taking their rating to Buy with a pretty hefty price target, the call should garner attention.
Note that Buckingham Research blessed PVH with a Strong Buy last week and the stock is down couple of pts since then. So while Merrill is playing ketchup here I think the buyers will line up.
The market is trading slightly down this morning so I would suggest not chasing PVH in the pre market and would rather look to get long after the open. You get more size & a better price.
