VF Corporation saw income rise 12% to a record $128.2 million from $114.7 million before the cumulative effect of a change in accounting policy for stock compensation expense, with earnings per share rising 14% to $1.14 from $1.00. Reflecting the cumulative effect adjustment recorded in the first quarter of 2005, net income in the 2005 period was $102.9 million, equal to 89 cents per share.
Total revenues increased 5% in the current quarter, to $1.67 billion from $1.58 billion in the year-ago quarter. Foreign currency translation negatively impacted revenues by approximately $30 million, or 2%, and earnings per share by 2 cents in the 2006 quarter.
Outdoor division 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, which contributed $42 million to revenues in the quarter.
Revenues of The North Face brand grew approximately 40%, while revenues of the Vans and Napapijri brands both achieved mid-teen percentage growth rates. The packs business also grew modestly in the quarter, driven by higher Eastpak brand sales in Europe.
The strong volume gains achieved by The North Face and Vans brands were the primary drivers behind a 59% increase in operating income in the quarter, with total Outdoor division operating margins rising two full percentage points to 13.1%.
Gross margins were 42.1% in both the 2006 and 2005 periods. Operating income rose 9% in the quarter, with operating margins increasing to 12.2% from 11.8%. Income rose 12% before the cumulative effect of the change in accounting policy for stock compensation expense in 2005, reflecting lower net interest expense this year.
Based on its strong performance this quarter, the company raised its full year guidance for both revenues and earnings, expecting revenues to expand 6% to 7%, driven primarily by the Outdoor coalition.
The company expects a 7% to 8% percent increase in revenues and approximately 10% increase in earnings per share in the second half. Q4 is expected to be particularly strong.
Earnings comparisons for the second quarter of 2006 will reflect the impact of special items that benefited net income by $7.7 million, or 7 cents per share, in the prior years quarter. Considering those special items, the company currently expects second quarter earnings per share to be about flat with the 85 cents per share reported in the second quarter of 2005. Revenues should rise by 6% to 7%.
