VF Corp. Lifts Guidance On Q2 Beat

VF Corp. raised the company’s earnings and revenue guidance for the year after reporting results in the second quarter ended September 29 that easily topped Wall Street’s guidance.

Highlights of the report

• Revenue from continuing operations increased 15 percent (up 16 percent in constant dollars) to $3.9 billion; revenue from continuing operations increased 6 percent (up 7 percent in constant dollars) excluding the revenue contribution from acquisitions;
• Active segment revenue increased 19 percent (up 20 percent in constant dollars) including a 26 percent (27 percent in constant dollars) increase in Vans brand revenue; Outdoor segment revenue increased 6 percent (up 7 percent in constant dollars) including a 5 percent (7 percent in constant dollars) increase in The North Face brand revenue and a 5 percentage point revenue growth contribution from acquisitions;
• International revenue increased 13 percent (up 15 percent in constant dollars) including a 9-percentage point revenue growth contribution from acquisitions;
• Direct-to-consumer revenue increased 19 percent (up 20 percent in constant dollars), including a 6 percentage point revenue growth contribution from acquisitions; Digital revenue increased 48 percent (up 49 percent in constant dollars) including a 17 percentage point revenue growth contribution from acquisitions;
• Gross margin from continuing operations decreased 10 basis points to 50.1 percent; on an adjusted basis, gross margin was in line with the prior year at 50.2 percent excluding the impact of acquisitions; on an adjusted basis, gross margin increased 70 basis points to 50.9 percent;
• Earnings per share from continuing operations was $1.26. Adjusted earnings per share from continuing operations increased 19 percent (up 21 percent in constant dollars) to $1.43 including an $0.08 contribution from acquisitions;
• Full year fiscal 2019 revenue is now expected to increase at least 11 percent to at least $13.7 billion;
• Full year fiscal 2019 adjusted earnings per share is now expected to be $3.65 reflecting an increase of 16 percent, and
• Quarterly dividend increased by 11 percent to $0.51 per share.

“VF’s second quarter results were strong, driven by our core brands, the company’s international and direct-to-consumer platforms and our work businesses,” said Steve Rendle, chairman, president and chief executive officer. “As we move into the second half of our fiscal year, we are confident in our growth engines as evidenced by the increase in both our dividend and full year outlook. We continue to invest behind our strategic growth priorities and the actions we are taking continue to advance our journey toward transforming VF into a purpose-led, performance-driven, consumer centric organization focused on and committed to delivering superior returns to shareholders.”

Second Quarter Fiscal 2019 Income Statement Review

Revenue increased 15 percent (up 16 percent in constant dollars) to $3.9 billion including a $324 million revenue contribution from the Williamson-Dickie, Icebreaker and Altra acquisitions. Wall Street’s consensus estimate had been $3.87 billion.

Excluding acquisitions, revenue increased 6 percent (up 7 percent in constant dollars) driven by VF’s largest brands, international and direct-to-consumer platforms and Active and Work segments.

Gross margin declined 10 basis points to 50.1 percent, as the impact of acquisitions was partially offset by a mix-shift toward higher margin businesses and continued focus on fundamentals. On an adjusted basis, gross margin was in line with the prior year at 50.2 percent due to the impact of acquisitions. Adjusted gross margin, excluding acquisitions, increased 70 basis points to 50.9 percent.

Operating income on a reported basis was $659 million. On an adjusted basis, operating income increased 19 percent to $690 million, including a $40 million contribution from acquisitions. Operating margin on a reported basis declined 10 basis points to 16.9 percent. Adjusted operating margin increased 60 basis points to 17.7 percent. Adjusted operating margin, excluding acquisitions, increased 100 basis points to 18.1 percent.

Earnings per share was $1.26 on a reported basis. On an adjusted basis, earnings per share increased 19 percent (21 percent in constant dollars) to $1.43, including an $0.08 contribution from acquisitions. Wall Street’s consensus estimate had been $1.33 a share.

Balance Sheet Highlights

Inventories were up 22 percent compared with the same period last year. Excluding the impact of acquisitions, inventories increased 5 percent. The company has $4 billion remaining under its current share repurchase authorization.

Adjusted Full Year Fiscal 2019 Outlook

The following outlook for fiscal year 2019 is on an adjusted basis and has been updated to include the following:

• Revenue is now expected to be at least $13.7 billion reflecting an increase of at least 11 percent which compares to the previous expectation of revenue between $13.6 billion and $13.7 billion. The updated revenue outlook includes the negative impact of the expected divestitures of the Reef brand and the Van Moer business.
• By segment, revenue for Outdoor is now expected to increase 7 percent to 8 percent versus the previous expectation of a 6 percent to 8 percent increase; revenue for Active is now expected to increase 14 percent to 15 percent versus the previous expectation of a 13 percent to 14 percent increase; revenue for Work is still expected to increase more than 35 percent, and revenue for Jeans is now expected to decline 1 percent to 2 percent versus the previous expectation of revenue in line with the prior year.
• International revenue is still expected to increase between 12 percent and 13 percent.
• Direct-to-consumer revenue is now expected to increase between 12 percent and 14 percent versus the previous expectation of an 11 percent to 13 percent increase. Digital revenue is still expected to increase more than 30 percent.
• Adjusted Gross margin is still expected to approximate 51 percent.
• Adjusted Operating margin is now expected to increase 80 basis points to 13.5 percent versus the previous expectation of 13.4 percent.
• Adjusted Earnings per share is now expected to be $3.65 reflecting an increase of 16 percent. This compares to the previous expectation of $3.52 to $3.57.
• Cash flow from operations is now expected to approximate $1.8 billion versus the previous expectation of cash flow from operations to exceed $1.7 billion.
• Other full year assumptions include an effective tax rate of about 16 percent (down from 16.5 percent previously) and capital expenditures of approximately $275 million.

Dividend Declared

On October 16, 2018, VF’s Board of Directors declared a quarterly dividend of $0.51 per share reflecting a 11 percent increase over the previous quarter’s dividend. This dividend will be payable on December 20, 2018 to shareholders of record at the close of business on December 10, 2018.

Photo courtesy Vans