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PVH (PVH), the parent company of apparel brands Calvin Klein and Tommy Hilfiger, isn't looking too stylish today following the company's Q2 earnings report which showed that macroeconomic headwinds are still pressuring its business, especially in its international markets. While the headlines of a sizable Q2 EPS beat, and a corresponding FY25 EPS guidance raise look promising, the earnings upside was mostly tied to a one-time item, and not PVH's normal business operations.

• Specifically, PVH's Q2 EPS of $3.01 included a tax benefit of approximately $0.55 related to the favorable settlement of an audit in an international jurisdiction. When PVH issued Q1 results on June 4, and guided for Q2 EPS of approximately $2.25, the company wasn't aware that it would receive this benefit during the quarter. Relatedly, the company raised its FY25 EPS guidance by the same $0.55 amount from this tax benefit. After guiding for EPS of $11.00-$11.25 last quarter, PVH is now projecting EPS of $11.55-$11.80.
• Unexpected tax benefits aside, PVH's results were lackluster and appear to be trending in the wrong direction, based on its downside Q3 outlook. In the relatively stronger North America market, revenue in the Tommy Hilfiger and Calvin Klein businesses increased by just 1% on a combined basis, down from last quarter's growth of 3%. While the wholesale business saw modest growth again, the DTC business weakened qtr/qtr with revenue decreasing by low-single digits. The company blamed recent softness in the consumer backdrop for the 4% drop in its owned and operated stores.
• Similarly, an increasingly difficult consumer environment in Asia Pacific, most notably including China and Australia, drove a 4% decrease in PVH's international business. That decline, though, is partly by design as PVH continues to implement its sales reduction initiative in Europe. The strategy is to reduce lower-margin sales and to drive higher quality sales in the region. On that note, PVH's non-GAAP gross margin improved by 250 bps yr/yr to 60.1%, reflecting a reduction in sales to lower margin wholesale accounts in Europe, as well as lower product costs. 
• Unfortunately, the demand picture has darkened, so the anticipated sales declines will likely cloud over the margin improvements. For Q3, the company is forecasting a 6-7% drop in revenue to $2.05-$2.07 bln, falling short of expectations. Likewise, its EPS guidance of $2.50 also badly missed the mark.

PVH's Q2 results and guidance add to a string of recent disappointing performances from the apparel industry, including from Levi's (LEVI), NIKE (NKE), and G-III (GIII). While PVH is taking the appropriate steps to rein in inventory in Europe (overall inventory decreased by 12% in Q2) and focus on higher-margin sales, the underlying business climate has become incrementally more challenging.