VF Corp. reported earnings and sales in the fourth quarter came in ahead of Wall Street’s consensus estimates but provided 2020 guidance that was lower than targets.

For fiscal 2020, VF said it expects full-year earnings between $3.30 and $3.35 a share on revenue between $11.7 billion and $11.8 billion. Wall Street had expected the company to report earnings of $4.11 a share on revenue of $14.5 billion.

Fourth Quarter Fiscal 2019 Income Statement Review

  • Revenue increased 6 percent (up 9 percent in constant dollars) to $3.2 billion, driven by VF’s largest brands, international and direct-to-consumer businesses, as well as strength from the Active, Outdoor and Work segments. Excluding Kontoor Brands, revenue increased 8 percent (up 12 percent in constant dollars).
  • Gross margin declined 20 basis points to 50.3 percent on a reported basis. On an adjusted basis, gross margin increased 30 basis points, including a 70 basis point negative impact from Kontoor Brands, to 51.1 percent.
    Operating income on a reported basis was $194 million. On an adjusted basis, operating income declined 5 percent to $313 million, including a $7 million contribution from acquisitions net of divestitures. Excluding Kontoor Brands, adjusted operating income increased 3 percent. Operating margin on a reported basis declined 420 basis points to 6.0 percent.
  • Adjusted operating margin declined 110 basis points, including a 70 basis point negative impact from Kontoor Brands, to 9.7 percent.
  • Earnings per share was $0.32 on a reported basis. On an adjusted basis, earnings per share declined 10 percent (4 percent in constant dollars) to $0.60, including a $0.01 contribution from acquisitions net of divestitures, and $0.04 per share ($20 million pretax) of incremental investment relative to the company’s prior outlook provided on January 18, 2019. The 60 cents a share compares to Wall Street’s consensus target of 58 cents.

Full Year Fiscal 2019 Income Statement Review

  • Revenue increased 12 percent (up 13 percent in constant dollars) to $13.8 billion. Excluding acquisitions net of divestitures, revenue increased 7 percent (up 8 percent in constant dollars), driven by VF’s largest brands, international and direct-to-consumer businesses, as well as strength from the Active, Outdoor and Work segments. Excluding Kontoor Brands, revenue increased 16 percent (up 18 percent in constant dollars), or 10 percent (11 percent in constant dollars), excluding acquisitions net of divestitures.
  • Gross margin increased 10 basis points to 50.7 percent on a reported basis. On an adjusted basis, gross margin increased 30 basis points, including a 10 basis point negative impact from Kontoor Brands, to 51.0 percent. Excluding acquisitions net of divestitures, adjusted gross margin increased 70 basis points to 51.4 percent.
  • Operating income on a reported basis increased 10 percent to $1.7 billion. On an adjusted basis, operating income increased 21 percent to $1.9 billion, including a $73 million contribution from acquisitions net of divestitures. Excluding Kontoor Brands, adjusted operating income increased 32 percent. Operating margin on a reported basis decreased 30 basis points to 12.1 percent. Adjusted operating margin increased 110 basis points, including a 50 basis point negative impact from Kontoor Brands, to 13.8 percent.
  • Earnings per share on a reported basis increased 63 percent to $3.14. Adjusted earnings per share increased 20 percent (up 22 percent in constant dollars) to $3.78, including a $0.15 contribution from acquisitions net of divestitures. Relative to the company’s original outlook provided on May 4, 2018, full year fiscal 2019 earnings per share included a $0.13 (about $65 million pretax) impact from incremental investments.

Other highlights for the year include: 

  • Full year fiscal 2019 Active segment revenue increased 16 percent (up 18 percent in constant dollars) including a 24 percent (26 percent in constant dollars) increase in Vans® brand revenue; Outdoor segment revenue increased 9 percent (up 10 percent in constant dollars) including a 9 percent (10 percent in constant dollars) increase in The North Face® brand revenue and a 5-percentage point revenue growth contribution from acquisitions;
  • Full year fiscal 2019 international revenue increased 10 percent (up 13 percent in constant dollars) including a 5-percentage point revenue growth contribution from acquisitions net of divestitures; China revenue increased 22 percent (up 24 percent in constant dollars), including a 5-percentage point revenue growth contribution from acquisitions;
  • Full year fiscal 2019 direct-to-consumer revenue increased 14 percent (up 15 percent in constant dollars) including a 3-percentage point revenue growth contribution from acquisitions net of divestitures; Digital revenue increased 32 percent (up 33 percent in constant dollars), including an 8-percentage point revenue growth contribution from acquisitions net of divestitures;

“Fiscal 2019 marked one of the most significant periods of transformation in VF’s 120-year history, highlighted by our announcement to spin off our Jeans business as an independent, publicly traded company,” said Steve Rendle, chairman, president and chief executive officer. “Despite the tremendous workload, we remained sharply focused and delivered another year of strong financial results and top quartile returns to our shareholders.”

Rendle continued, “As we enter fiscal 2020, our portfolio is well positioned, and our growth and momentum are strong, fueled by the investments we are making in support of our long-term strategy. The bold decisions we continue to make to evolve our company underpin the transformational journey we’re on to deliver on our commitment to be a purpose-led, performance-driven and value-creating enterprise capable of delivering sustainable long-term shareholder value.”

Balance Sheet and Cash Flow Highlights

Inventories were up 4 percent compared to March 2018 levels. In fiscal year 2019, VF’s cash flow from operations reached approximately $1.7 billion, or nearly $1.8 billion on an adjusted basis. The company also returned more than $900 million to shareholders through dividends and share repurchases.

Separation of Kontoor Brands

As previously announced, on April 30, 2019, VF’s Board of Directors approved the separation of its Jeans business (the “Separation”), which will be achieved through the distribution of 100 percent of the shares of Kontoor Brands, Inc. (“Kontoor Brands”) to holders of VF common stock on the record date of May 10, 2019. VF stockholders of record will receive one share of Kontoor Brands common stock for every seven shares of VF common stock. The distribution is expected to be completed after the close of the New York Stock Exchange today, May 22, 2019. Following the Separation, Kontoor Brands will be an independent, publicly traded company, and VF will retain no ownership interest in Kontoor Brands. Kontoor Brands has received approval for the listing of its common stock on the New York Stock Exchange under the symbol “KTB.”

Adjusted Full Year Fiscal 2020 Outlook

VF’s outlook for full-year fiscal 2020 is on an adjusted continuing operations basis unless otherwise noted, excludes Kontoor Brands and includes the following:

  • Revenue is expected to be in the range of $11.7 billion to $11.8 billion, reflecting growth of approximately 5 percent to 6 percent, or approximately 7 percent to 8 percent on a constant dollar basis excluding the impact of acquisitions net of divestitures. By segment, revenue for Outdoor is expected to increase approximately 4 percent to 5 percent, or approximately 5 percent to 6 percent on a constant dollar basis, excluding the impact of acquisitions; revenue for Active is expected to increase approximately 6 percent to 7 percent, or approximately 9 percent to 10 percent on a constant dollar basis excluding the impact of divestitures; and, revenue for Work is expected to increase approximately 3 percent to 5 percent, or approximately 4 percent to 6 percent on a constant dollar basis, excluding the impact of divestitures.
  • International revenue is expected to increase approximately 4 percent to 6 percent, or approximately 7 percent to 9 percent on a constant dollar basis, excluding the impact of acquisitions net of divestitures. By geographic region, European revenue is expected to increase approximately 1 percent to 3 percent, or approximately 5 percent to 7 percent on a constant dollar basis, excluding the impact of acquisitions net of divestitures. In the Asia Pacific region, revenue is expected to increase approximately 12 percent to 14 percent, or approximately 14 percent to 16 percent on a constant dollar basis. And, in the Americas (non-U.S.) region, revenue is expected to increase approximately 2 percent to 4 percent, or approximately 3 percent to 5 percent on a constant dollar basis. Revenue growth in the Americas (non-U.S.) region is expected to be negatively impacted by approximately 6 percentage points as a result of planned strategic business model changes.
  • Direct-to-consumer revenue is expected to increase approximately 9 percent to 11 percent, or approximately 10 percent to 12 percent on a constant dollar basis, including 25 percent growth in digital.
  • Adjusted gross margin is expected to approach 54.0 percent, which represents an estimated increase of approximately 60 basis points.
  • Adjusted operating margin is expected to be 13.7 percent, which represents an estimated increase of approximately 60 basis points.
  • Adjusted earnings per share is expected to be in the range of $3.30 to $3.35, reflecting estimated growth of approximately 15 percent to 17 percent, or approximately 17 percent to 19 percent on a constant dollar basis, excluding the impact of acquisitions net of divestitures.
  • Adjusted cash flow from operations is expected to be at least $1.3 billion.
  • Other full year assumptions include an effective tax rate in the range of 15 percent to 15.5 percent and capital expenditures of just under $400 million.

Image courtesy Vans