VF Corp. raised its earnings and sales guidance for its fiscal year after reporting first-quarter results that topped Wall Street targets.

Highlights of the quarter include:

  • Revenue from continuing operations increased 104 percent (up 96 percent in constant dollars) to $2.2 billion; excluding acquisitions, revenue increased 90 percent (up 83 percent in constant dollars);
  • Active segment revenue increased 128 percent (up 120 percent in constant dollars) including a 110 percent (102 percent in constant dollars) increase in Vans brand revenue and a 26 percentage point revenue growth contribution from acquisitions; Outdoor segment revenue increased 81 percent (up 72 percent in constant dollars) including a 93 percent (83 percent in constant dollars) increase in The North Face brand revenue; Work segment revenue increased 69 percent (up 66 percent in constant dollars) including a 61 percent (58 percent in constant dollars) increase in Dickies® brand revenue;
  • International revenue increased 84 percent (up 68 percent in constant dollars) including a 10 percentage point revenue growth contribution from acquisitions; Europe revenue increased 126 percent (up 106 percent in constant dollars); Greater China revenue increased 19 percent (up 9 percent in constant dollars), including a 23 percent (12 percent in constant dollars) increase in Mainland China;
    Direct-to-Consumer revenue increased 97 percent (up 90 percent in constant dollars) including a 27 percentage point revenue growth contribution from acquisitions; Digital revenue increased 25 percent (up 20 percent in constant dollars) versus the prior year including a 29 percentage point revenue growth contribution from acquisitions; excluding acquisitions, Digital revenue increased 72 percent versus the first quarter of fiscal 2020;
  • Gross margin from continuing operations increased 360 basis points to 56.5 percent; on an adjusted basis, gross margin increased 260 basis points to 56.7 percent including a 30 basis point positive impact from acquisitions;
  • Operating income from continuing operations on a reported basis was $203 million; on an adjusted basis, operating income from continuing operations increased 164 percent (160 percent in constant dollars) to $148 million including a $32 million contribution from acquisitions;
  • Earnings per share from continuing operations was 39 cents per share; adjusted earnings per share from continuing operations increased 148 percent (up 144 percent in constant dollars) to 27 cents including a 7 cents per share contribution from acquisitions;
  • Full-year fiscal 2022 revenue is now expected to be at least $12.0 billion, reflecting growth of at least 30 percent, including an approximate $600 million contribution from the Supreme brand; full-year fiscal 2022 adjusted earnings per share is now expected to be at least $3.20, including an approximate 25 cents contribution from the Supreme brand.

Sales of $2.2 billion came in ahead of Wall Street’s consensus estimate of $2.14 billion. Earnings per share of 27 cents on an adjusted basis topped analysts’ consensus estimate of 11 cents.

“Our teams delivered an outstanding first quarter, powering VF back to pre-pandemic revenue levels while driving an earnings recovery ahead of our expectations,” said Steve Rendle, VF’s Chairman, President and CEO. “We continue to see broad-based momentum across the portfolio, supporting an increase to our fiscal 2022 outlook for each of our largest brands. Though the first quarter is a relatively small portion of our total year, this strong start reinforces my confidence in our ability to accelerate growth through fiscal 2022 and beyond.”

Discontinued Operations – Occupational Workwear Business
On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also included a license for certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel.

Adjusted Amounts – Excluding Transaction and Deal Related Activities and Costs Related to Specified Strategic Business Decisions

  • The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme® brand. Total transaction and deal related activities include a decrease in the estimated fair value of the contingent consideration liability of $73 million and integration costs of approximately $4 million in the first quarter of fiscal 2022.
  • The adjusted amounts in this release exclude costs related to VF’s business model transformation, a transformation initiative for our Asia-Pacific regional operations and certain cost optimization activities and other charges indirectly related to the divestiture of the Occupational Workwear business. Total costs were approximately $14 million in the first quarter of fiscal 2022.
  • Combined, the above items positively impacted earnings per share by $0.12 during the first quarter of fiscal 2022. All adjusted amounts referenced herein exclude the effects of these amounts.

COVID-19 Outbreak Update

  • To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.
  • The majority of VF’s supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. The resurgence of COVID-19 lockdowns in key sourcing countries has resulted in additional manufacturing capacity constraints during the first quarter. Additionally, port delays, equipment availability and other logistics challenges have contributed to product delays. VF is working with its suppliers to minimize disruption and is employing expedited freight as needed. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.
  • In North America, less than 5 percent of stores were closed at the beginning of the first quarter. All stores have since reopened and currently all stores are open.
  • In the EMEA region, approximately 60 percent of stores were closed at the beginning of the first quarter. All stores have since reopened and currently all stores are open.
  • Nearly all of VF’s owned retail stores in the APAC region, including Mainland China, were open at the beginning of the first quarter. Additional stores have since re-closed and currently 5 percent of stores are closed.
  • VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

First Quarter Fiscal 2022 Income Statement Review

  • Revenue increased 104 percent (up 96 percent in constant dollars) to $2.2 billion. Excluding the impact of acquisitions, revenue increased 90 percent (up 83 percent in constant dollars) driven by VF’s largest brands and the EMEA and North American regions, which experienced a significant negative impact from COVID-19 in the prior year period.
  • Gross margin increased 360 basis points to 56.5 percent, primarily driven by reduced promotional activity. On an adjusted basis, gross margin increased 260 basis points, including a 30 basis point positive impact from acquisitions, to 56.7 percent.
  • Operating income on a reported basis was $203 million. On an adjusted basis, operating income increased 164 percent (160 percent in constant dollars) to $148 million, including a $32 million contribution from acquisitions. Operating margin on a reported basis was 9.2 percent. Adjusted operating margin increased 2820 basis points, including a 110 basis point positive impact from acquisitions, to 6.8 percent.
  • Earnings per share was $0.39 on a reported basis. On an adjusted basis, earnings per share increased 148 percent (up 144 percent in constant dollars) to $0.27, including a $0.07 contribution from acquisitions.

Balance Sheet Highlights

Inventories were down 13 percent compared with the same period last year. During the quarter, VF returned approximately $192 million of cash to shareholders through dividends. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program. VF has $2.8 billion remaining under its current share repurchase authorization.

Full Year Fiscal 2022 Outlook

VF’s full year outlook assumes no material deterioration to the company’s current business operations as a result of COVID-19, governmental actions and regulations. VF’s full year fiscal 2022 outlook has been updated and includes the following:

  • Revenue is now expected to be at least $12.0 billion, reflecting growth of at least 30 percent, including an approximate $600 million contribution from the Supreme brand. This compares to the previous expectation of approximately $11.8 billion, reflecting growth of approximately 28 percent. By segment, revenue for Outdoor is now expected to increase between 24 percent and 26 percent versus the previous expectation of a 23 to 25 percent increase; revenue for Active is now expected to increase between 37 percent and 39 percent versus the previous expectation of a 34 to 36 percent increase; revenue for Work is now expected to increase between 16 and 18 percent versus the previous expectation of a 10 to 12 percent increase.
  • International revenue is expected to increase between 25 percent and 27 percent. By geographic region, in the EMEA region, revenue is expected to increase between 29 percent and 31 percent. In the Asia Pacific region, revenue is expected to increase between 18 percent and 20 percent. And, in the Americas (non-U.S.) region, revenue is expected to increase between 28 percent and 30 percent.
  • Direct-to-consumer revenue is now expected to increase between 39 percent and 41 percent versus the previous expectation of 38 percent and 40 percent, including Digital revenue growth of between 29 percent and 31 percent.
  • Adjusted gross margin is expected to exceed 56.0 percent, which represents an estimated increase of more than 270 basis points.
  • Adjusted operating margin is now expected to increase more than 500 basis points to more than 13.0 percent, versus the previous expectation of approximately 12.8 percent.
  • Adjusted earnings per share is expected to be at least $3.20, including an approximate $0.25 contribution from the Supreme® brand. This compares to the previous expectation of approximately $3.05.
  • Adjusted cash flow from operations is expected to exceed $1.0 billion.
  • Other full year assumptions include an effective tax rate of approximately 15 percent and capital expenditures of approximately $350 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.49 per share, payable on September 20, 2021, to shareholders of record on September 10, 2021. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.

Photo courtesy Vans