Vans. Inc. gave back just a bit of their nice share gain from last week, closing down 3.9% for the week to close at $10.76 on Friday. The company saw a 22.3% increase in net income on a 4.6% increase in sales for the fiscal first quarter ended August 30, 2003. Diluted EPS from continuing operations increased 106.5% to 64 cents versus 31 cents in Q1 2003.
The company also came up with a measure for its “base business”, or the business that will remain after the planned closure of six of the eight remaining skateparks. Net sales for the base business increased 5.2% to $126.2 million and net income jumped 145.1% to $13.8 million, or 76 cents per diluted share, versus net income of $5.6 million, or 31 cents per diluted share, in the same period last year in the “base business”.
The company has reached agreements to close five of the skateparks and are in active discussions on two of the three remaining parks. Vans expects to close one of those parks and move the other to a lease based on percentage of revenues instead of its current fixed rate. The companys first park at The Block, will remain and will make money, the company said.
The increase in net income was attributable in part to a lower tax rate that netted $3.0 million in tax expense savings, providing 11 cents of the quarters EPS improvement. The lower rate is expected to continue for the next few years as the company works through the losses associated with the skateparks. Vans also saw a lower effective tax rate in Europe in Q1, but much of that benefit will shift to Q2 and Q4.
The foreign exchange rate benefit in the quarter added about 10% to the International sales number and about 10 cents to the earnings per share line.
Vans also pointed to a stunning 420 basis point improvement in gross margin for the earnings gain, citing a higher-than-expected exchange rate gain from the weaker dollar, same-store sales increases at owned-retail, markdown and returns charges that came in under plan, an increase in profits from the Vans Warped Tour and an increase in licensed income from Japan.
On the owned-retail side, Vans saw a 13.7% increase in same-store sales. The company said that sales during the Back-to-School weeks ran 2.5 times what an average week will do through Thanksgiving. All genders of footwear saw growth, with Girls footwear seen as particularly strong. Management is pleased with the trend that shows that the brand can be stretched beyond Mens.
Vans is on track for the sixth straight double-digit comp store increase in September, and stated they are a bit concerned about running out of some key product. They expect to be fully replenished by Holiday. The company sees mid to high single-digit comps in Q2 and Q3 as they go up against tougher comps from last year.
On the wholesale end of the business, Vans saw sales decline 3.1% in the U.S., but sees that trend reversing in the current quarter as sales are expected to meet the 5.0% backlog gain at the end of fiscal Q1. Girls has been a “shining star”.
On a GAAP basis, VANS sees full-year diluted EPS in the 25 cents to 35 cents range on sales of $324 million to $334 million. For the “base business”, the company sees earnings of 47 cents to 52 cents.
