By Eric Smith

The path that Vans will travel en route to $5 billion in annual revenue by 2023 is sure to be strewn with economic headwinds and market deviations along the way, but the action lifestyle brand is kicking off its quest toward that ambitious destination in style.

Vans revenue grew 26 percent in the second quarter ended September 29, boosting parent company VF Corp.’s revenue 15 percent (up 16 percent in constant dollars) to $3.9 billion for the period.

That total for the Greensboro, NC-based company—which included a $324 million revenue contribution from the Williamson-Dickie, Icebreaker and Altra acquisitions—helped VF beat Wall Street’s consensus estimate by $40 million.

For the quarter, VF’s earnings per share from continuing operations was $1.26, while adjusted earnings per share from continuing operations increased 19 percent (up 21 percent in constant dollars) to $1.43, including an 8 cent contribution from acquisitions, beating Wall Street estimates by 10 cents.

Vans posted an “exceptional” quarter, VF CEO Steve Rendle said on Friday morning’s earnings conference call with analysts. “Vans revenue growth was strong across all regions, channels and product categories,” he said. “And importantly, growth also remains well diversified.”

Following the earnings call, Rendle and VF CFO Scott Roe spoke with SGB about a wide range of topics, including Vans’ increased market and mind share across geographies, channels and demographics. (Look for much more with Rendle and Roe next week in SGB Executive, including the company’s pending headquarters move to Denver.)

SGB covered the Vans investor day in September in The Path to $5 Billion: Vans Unveils Roadmap For Lofty Goal, an article that detailed how Vans plans to execute on a series of growth drivers across multiple channels and in multiple markets to average 10 percent to 12 percent compound annual growth rate (CAGR) over the next five years to reach $5 billion in annual revenue.

Part of the strategy, Roe told SGB on Friday, is reframing the way the brand is perceived in the marketplace, which appears to have already gained traction.

“It’s no longer about being the largest skate/surf brand, which it is, but it’s about Vans being an everyday choice in that athletic leisure lifestyle along with brands like Nike, Adidas, etc.,” Roe said. “When you think about it that way, we’re really just getting started. You see that on the street with how many people are choosing this as part of their closets. You see it in retail shops, where instead of on the back wall, it’s in the drive aisle and in the window. There’s more and more and more placement that puts Vans on an equal footing with some of these much, much larger franchises.

“We’re not saying that Vans is going to be Nike, but when you consider that Nike is 10 times larger than Vans, it’s pretty easy to see that we’re just getting started in terms of the long-term growth path for this brand.”

Despite Vans taking a huge step forward on its journey to $5 billion, shares of VF were down $9.35, or 10.7 percent, at market close on Friday, perhaps due to the company’s statement that Vans growth should moderate—by design—in the second half of Fiscal 2019, according to Sam Poser of Susquehanna Financial Group LLLP.

“We believe today’s pullback in the stock is driven by investors’ unfounded fear that the 2H19 deceleration of Vans reflects poorly on the long-term health of the brand,” he wrote in a note to investors. “We reiterate that we think the slowdown is intentional, was telegraphed by management and aligns with management’s objective of keeping the market place hungry for Vans’ product. All of our checks indicate that the brand remains extraordinarily healthy. ASPs continue to improve across all channels and show no signs of erosion. Additionally, despite massive demand for Vans’ product, retailers with whom we have spoken indicate that Vans is allocating product in order to not oversaturate the market.

“All of VFC’s actions around Vans reflect a willingness to prioritize brand sanctity over sales growth, which is essential for the long-term health of any brand, in our view. We note VFC increased FY19 guidance for Vans from at least 15 percent to 18-19 percent revenue growth. We are confident that there is material upside to Vans’ 8 percent to 9 percent implied (within FY19 guidance) revenue growth. Based on how well the brand is being managed, we are confident that Vans will meet or exceed its long term targeted revenue CAGR of 10-12 percent.”

Naturally, Vans’ Q2 performance dominated VF’s active segment, which saw revenue increase 19 percent (up 20 percent in constant dollars). Other brands in this segment are Eagle Creek, Eastpak, JanSport, Kipling and Napapijri. VF recently announced it was selling Reef to The Rockport Group.

VF’s outdoor segment, meanwhile, saw revenue increase 6 percent (up 7 percent in constant dollars), including a 5 percent (7 percent in constant dollars) increase in The North Face brand revenue and a 5 percentage point revenue growth contribution from acquisitions. The company’s other outdoor brands are Altra, Icebreaker, Smartwool and Timberland. Read more about Timberland by clicking here.

The company raised guidance for The North Face to 7 percent to 8 percent, up from 6 percent to 8 percent, which was also the five year target, Rendle said.

“What’s giving us confidence is performance across all of the regions,” he told SGB. “The U.S. is really where a lot of the work has gone into cleaning up the marketplace, resetting the brand from a commitment to the outdoor roots and focusing first on product. But you also see it coming to life in the marketing and brand messaging. This quarter we saw really good sell-throughs across the number of categories—day packs, accessories, lifestyle apparel, sportswear items, logo wear—really good, solid, sell-through and a cleaner marketplace. Those are really good indicators of consumers looking to purchase the brand beyond its core, beyond the strength of outerwear.”

Based on the strong performance across the company’s portfolio in Q2, VF updated its guidance for fiscal 2019. The company now expects revenue to be at least $13.7 billion, reflecting an increase of at least 11 percent, up from the previous expectation of revenue between $13.6 billion and $13.7 billion. The updated revenue outlook includes the negative impact of the expected divestitures of the Reef brand and the Van Moer business.

By segment, revenue for the outdoor portfolio is now expected to increase 7 percent to 8 percent, up from the previous expectation of a 6 percent to 8 percent increase. Revenue for the active portfolio is now expected to increase 14 percent to 15 percent, up from the previous expectation of a 13 percent to 14 percent increase. Revenue for the work portfolio is still expected to increase more than 35 percent. And revenue for the jeans portfolio is now expected to decline 1 percent to 2 percent versus the previous expectation of revenue in line with the prior year.

Photo courtesy Vans

 

Eric Smith is Senior Business Editor at SGB Media. Reach him at ericsmith@sportsonesource.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.