VF Corp. reported earnings per share on an adjusted basis in its fiscal second quarter rose 6 percent but came in below Wall Street expectations. The company reiterated its guidance for the year.  Among major brands on a currency-neutral basis, Vans again led the way, up 16 percent; followed by The North Face, up 10 percent; and Timberland, 1 percent. Dickies was was down 3 percent.

Highlights of the quarter ended September 28:

  • Revenue from continuing operations increased 5 percent (up 7 percent in constant dollars) to $3.4 billion; excluding acquisitions and divestitures, adjusted revenue increased 6 percent (up 8 percent in constant dollars);
  • Active segment revenue increased 9 percent (up 11 percent in constant dollars) including a 14 percent (16 percent in constant dollars) increase in Vans brand revenue; Outdoor segment revenue increased 4 percent (up 6 percent in constant dollars) including an 8 percent (10 percent in constant dollars) increase in The North Face brand revenue;
  • International revenue increased 4 percent (up 8 percent in constant dollars); China revenue increased 20 percent (up 24 percent in constant dollars);
  • Direct-to-Consumer revenue increased 11 percent (up 13 percent in constant dollars); Digital revenue increased 15 percent (up 17 percent in constant dollars);
  • Gross margin from continuing operations increased 90 basis points to 52.9 percent; on an adjusted basis, gross margin increased 90 basis points to 53.1 percent;
  • Earnings per share from continuing operations was $1.61. Adjusted earnings per share from continuing operations increased 6 percent (up 8 percent in constant dollars) to $1.26;
  • Full year fiscal 2020 adjusted revenue from continuing operations still expected to approximate $11.8 billion, reflecting growth of approximately 6 percent (8 percent on a constant dollar basis, excluding acquisitions and divestitures);
  • Full year fiscal 2020 adjusted earnings per share from continuing operations still expected to be in the range of $3.32 to $3.37, reflecting growth of 16 percent to 18 percent (19 percent to 21 percent on a constant dollar basis, excluding acquisitions and divestitures); and,
  • Quarterly dividend increased by 12 percent to $0.48 per share.

The FactSet consensus was for adjusted EPS of $1.31 and revenue of $3.42 billion.

“We’re pleased with the strength of our second quarter and first half results, driven by our two largest brands and our international and direct-to-consumer platforms,” said Steve Rendle, chairman, president and chief executive officer. “The quality and fundamentals of our business remain solid as a result of the focus and strategic execution of our business teams around the globe. Despite an increasingly uncertain geopolitical and macroeconomic environment, we are confident in the trajectory of our business as we move into the second half of our fiscal year, as reaffirmed by our outlook. We remain deeply committed to transforming VF into a more consumer-minded and retail-centric organization while delivering superior returns to shareholders.”

Second Quarter Fiscal 2020 Income Statement Review

  • Revenue increased 5 percent (up 7 percent in constant dollars) to $3.4 billion. Excluding the impact of acquisitions and divestitures and on an adjusted basis, revenue increased 6 percent (up 8 percent in constant dollars), driven by VF’s two largest brands, and our international and direct-to-consumer platforms.
  • Gross margin increased 90 basis points to 52.9 percent, primarily driven by favorable mix shift toward higher margin businesses and timing of net foreign currency transaction gains. On an adjusted basis, gross margin increased 90 basis points to 53.1 percent.
  • Operating income on a reported basis was $579 million. On an adjusted basis, operating income increased 7 percent (up 10 percent in constant dollars) to $606 million. Operating margin on a reported basis increased 20 basis points to 17.1 percent. Adjusted operating margin increased 40 basis points to 17.9 percent.
  • Earnings per share was $1.61 on a reported basis. On an adjusted basis, earnings per share increased 6 percent (up 8 percent in constant dollars) to $1.26.

Among its segments, Outdoor revenues were $1.53 billion against $1.47 billion a year ago, rising 4 percent on a reported basis and 6 percent on a currency-neutral basis. Operating earnings in the Outdoor segment reached $256.4 million against $258.1 million, down 1 percent on a reported basis and up 2 percent on a currency-neutral basis.

In the Active segment, sales reached $1.41 billion against $1.3 billion, a gain of 9 percent on a reported basis and 11 percent on a currency-neutral basis. Operating earnings in the Active segment reached $388.2 million against $352.1 million, up 11 percent on a reported basis and 13 percent on a currency-neutral basis.

In the Work segment, sales reached $435.6 million against $451.7 million, a decline of 4 percent on a reported basis and 3 percent on a currency-neutral basis. Operating earnings in the Work segment reached $39.2 million against $51.3 million, down 24 percent on a reported basis and 23 percent on a currency-neutral basis.

Among brands, Vans grew 16 on a currency-neutral basis and 14 percent on a reported basis. On a currency-neutral basis, Vans grew 31 percent in APAC, 15 percent in the Americas and 9 percent in EMEA.

The North Face climbed 10 percent on a currency-neutral basis and 8 percent on a reported basis. On a currency-neutral basis, The North Face grew 12 percent in both APAC and EMEA and gained 9 percent in the Americas.

Timberland increased 1 percent on a currency-neutral basis while dipping 1 percent on a reported basis. On a currency-neutral basis, Timberland grew 9 percent in Americas and gained 6 percent in APAC, but slid 7 percent in EMEA.

Dickies was down 3 percent on a currency-neutral basis and declined 4 percent on a reported basis. On a currency-neutral basis, Dickies was down 9 percent in Americas, up 2 percent in EMEA and jumped 22 percent in APAC.

Adjusted results exclude the acquisitions of Icebreaker and Altra as well as the spin-off of Kontoor Brands, its former jeans business. Adjustments also exclude costs related to office relocations and specified strategic business decisions and the impact of Swiss tax legislation. Combined, the above items positively impacted earnings per share by 36 cents during the second quarter of fiscal 2020 and 30 cents during the first six months of fiscal 2020. All adjusted amounts referenced herein exclude the effects of these amounts.

Balance Sheet Highlights

Inventories were up 10 percent compared with the same period last year. During the quarter, VF also returned approximately $171 million of cash to shareholders through dividends. The company did not repurchase any shares during the second quarter and has $3.8 billion remaining under its current share repurchase authorization.

Adjusted Full Year Fiscal 2020 Outlook

VF’s outlook for full year fiscal 2020 is on an adjusted continuing operations basis unless otherwise noted, and has been updated to include the following:

  • Revenue is still expected to approximate $11.8 billion, reflecting an increase of approximately 6 percent (8 percent on a constant dollar basis excluding the impact of acquisitions and divestitures). By segment, revenue for Outdoor is still expected to increase approximately 5 percent (6 percent to 7 percent on a constant dollar basis, excluding the impact of acquisitions). This compares to the previous expectation of an increase in revenue of approximately 5 percent (6 percent on a constant dollar basis, excluding the impact of acquisitions). Revenue for Active is now expected to increase approximately 8 percent to 9 percent (11 percent to 12 percent on a constant dollar basis, excluding the impact of divestitures). This compares to the previous expectation of an increase in revenue of approximately 7 percent to 8 percent (10 percent to 11 percent on a constant dollar basis, excluding the impact of divestitures). Revenue for Work is now expected to increase approximately 2 percent to 3 percent (4 percent to 5 percent on a constant dollar basis, excluding the impact of divestitures). This compares to the previous expectation of an increase in revenue of approximately 3 percent to 5 percent (4 percent to 6 percent on a constant dollar basis, excluding the impact of divestitures).
  • International revenue is now expected to increase approximately 4 percent to 5 percent, or approximately 8 percent to 9 percent on a constant dollar basis, excluding the impact of acquisitions and divestitures. This compares to the previous expectation of an increase in revenue of approximately 4 percent to 6 percent (7 percent to 9 percent on a constant dollar basis, excluding the impact of acquisitions and divestitures).
  • Direct-to-consumer revenue is now expected to increase approximately 11 percent to 12 percent (12 percent to 13 percent on a constant dollar basis), including about 25 percent growth in digital. This compares to the previous expectation of an increase in revenue of approximately 10 percent to 12 percent (11 percent to 13 percent on a constant dollar basis).
  • Adjusted gross margin is still expected to be 54.1 percent, which represents an estimated increase of 80 basis points.
  • Adjusted operating margin is still expected to be 13.8 percent, which represents an estimated increase of approximately 90 basis points.
  • Adjusted earnings per share is still expected to be in the range of $3.32 to $3.37, reflecting growth of approximately 16 percent to 18 percent (19 percent to 21 percent on a constant dollar basis, excluding acquisitions and divestitures).
  • Adjusted cash flow from operations is still expected to be at least $1.3 billion.
  • Other full year assumptions include an effective tax rate of approximately 15 percent to 15.5 percent and capital expenditures of approximately $400 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.48 per share, reflecting a 12 percent increase over the previous quarter’s dividend. This dividend will be payable on December 20, 2019, to shareholders of record on December 10, 2019.

Photo courtesy Vans