Phillips-Van Heusen Enters Licensing Agreement With Timberland

Phillips-Van Heusen Corp. (PVH) has the buttoned-down look all sewn up. The top US dress shirt maker sells clothes, sunglasses, and shoes for men, women, and children under its Van Heusen, Bass, Calvin Klein, and IZOD brands, as well as licensed names DKNY, Geoffrey Beene, Kenneth Cole, and private labels. It distributes its products to department stores and other wholesale clients and sells them through outlet stores, which operate under the firm's brand names.

Of all the brands PVH owns, it's Calvin Klein that currently shines. Introduced in 2005, CK men's sportswear collection has been a best-seller in department stores, ones like Macy's. That coupled with the Calvin Klein brand should continue to add significantly to the top line for the near future as the designers seem to have the right flair for making the clothes attractive to young and middle-aged men. Also, the CK women's sportswear, licensed to Kellwood, is contributing nicely to sales. PVH collects royalties from CK women's clothes, outerwear, denim, and intimates as well as fragrances, handbags, footwear, and accessories.

Last Wednesday, PVH announced it has entered into a licensing arrangement with Timberland (TBL) to design, source and market men's and women's casual sportswear under the Timberland brand in North America. Phillips-Van Heusen will assume management of the men's apparel line in fall 2008 and launch a women's line in fall 2009. Phillips-Van Heusen said it sees incurring $5 million of start-up costs in 2007, and expects 2007 earnings per share of $2.97 to $3.05, excluding the impact of the acquisition of Superba.

Apax groups own 45% and Earnest Partners has about 15% of PVH stock. FMR Corp., the large mutual fund, owns 11.3% of the shares. The stock's price has been on a strong upward move over the last 4 years, starting in 2003 with a low of $11.20. Not coincidentally, earnings have been on the same trajectory, going from 99 cents a share in 2003 to $1.37 in 2004, $2.03 in 2005, $2.60 for 2006, and above is the forecast for 2007.

This is a mid-cap stock with market cap of $3.0 billion. Earnings should continue to grow by about 16% a year, on average, over the next 5 years, according to analysts. There's a small dividend attached, 60 cents a year. Debt is 31% of capital. Current assets are more than 3 times current liabilities. Return on equity is a very healthy 19.5% for the trailing 12 months.

Phillips-Van Heusen has several strong brands performing right now with good prospects of more of the same ahead. But fashion can be fickle. That's one of the reasons Timberland became available. That brand has seen profits fall recently, and two officers, the COO and the CFO, have resigned. Timberland had been hot for several years and is now seeing a decline in sales of its once trendy boots.

PVH/TBL 1-yr comparison chart

Disclosure: Author has no position in TBL or PVH.