VF Corporation was hitting on nearly all cylinders during the first quarter of 2006, with solid performances coming from every division boosting both the top and bottom line. VFC was able to translate stronger-than-expected performances in its denim business, as well as solid sales results in the Outdoor Coalition, into double-digit earnings growth which outpaced sales by more than a two-to-one margin.
Outdoor Coalition total revenues increased 35% in the quarter, driven by particularly strong global growth in The North Face, Vans, and Napapijri brands and by the addition of the Reef brand, acquired in April 2005. Strong volume gains achieved by TNF and Vans were the primary drivers behind a 59%, or two full points, increase in operating income in Q1 to 13.1% of sales.
Revenues at The North Face brand grew approximately 40%, with growth across all categories that was relatively balanced between genders. Womens specific outerwear was said to account for “just over” 50% of the category. The brand is showing both retail and wholesale sales growth, but the wholesale business remains the primary driver. TNFs U.S. retail stores reported a 19% increase in comp store sales in the quarter and the International business also continued to be very strong, expanding into new markets such as Russia and Eastern Europe. Global fall bookings for The North Face are up over 30%.
Vans reported “mid-teens” sales growth during the first quarter and continues to perform above expectations with strong results in both its wholesale and retail operations. Vans reported a 42% increase in domestic full-priced comp store sales in the quarter. VF is remodeling Vans retail locations to make them more appropriate for the consumers. The company has seen consistent improvement in performance whenever it converts a store.
Napapijri was said to be “back on track” after some supply chain issues last year that impacted profitability. Revenues grew in the “mid-teens” and fall bookings are up 23%. The brand continues to expand outside its home market of Italy with particular strength in Germany, Spain, and France. The brand will open its first two stores in the U.S. in New York and Miami in June.
Kipling will open new stores in Amsterdam, Brussels, Paris, and Hamburg and continue to open retail partnership stores with 13 planned for this year.
Reef contributed $42 million to revenues in the quarter and is on track to exceed the $100 million mark in revenues this year, up from about $75 million at the time of the acquisition. VF Management said that there is improvement in the Reef business with sandals as well as the footwear business. The launch of the apparel business is still a work in process.
The Eastpak and JanSport businesses also grew modestly in the quarter, driven by higher Eastpak brand sales in Europe. The packs division was said to have met all internal goals.
Imagewear reported a 4% increase in revenues and continued strong profitability and the division continues to expect returns on invested capital well above VF's 17% target for this business. The licensed sports business contributed higher operating profitability. VF remains “in the hunt” for brand product and distribution extensions in its licensed properties.
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