VF Corp. reported a net loss of $285.6 million, or 73 cents a share, in the first quarter ended June 30 as revenues tumbled 48 percent. The loss was 10 cents better and sales were slightly above Wall Street’s targets. VF said it has seen a recovery in China and expects revenues for the current quarter to be down less than 25 percent.

Second-Quarter Highlights:

  • Revenue from continuing operations decreased 48 percent (down 47 percent in constant dollars) to $1.1 billion;
  • Active segment revenue decreased 54 percent (down 53 percent in constant dollars) including a 52 percent (51 percent in constant dollars) decrease in Vans brand revenue; Outdoor segment revenue decreased 44 percent (down 43 percent in constant dollars) including a 45 percent (44 percent in constant dollars) decrease in The North Face brand revenue; Work segment revenue decreased 19 percent (down 18 percent in constant dollars) including a 16 percent (15 percent in constant dollars) decrease in Dickies brand revenue;
  • International revenue decreased 39 percent (down 37 percent in constant dollars); Europe revenue decreased 48 percent (down 47 percent in constant dollars); Greater China revenue was flat (up 3 percent in constant dollars), including an increase of 5 percent (9 percent in constant dollars) in Mainland China;
  • Direct-to-Consumer revenue decreased 37 percent; Digital revenue increased 78 percent (up 81 percent in constant dollars);
  • Gross margin from continuing operations decreased 340 basis points to 52.9 percent; on an adjusted basis, gross margin decreased 220 basis points to 54.1 percent;
  • Operating income (loss) from continuing operations on a reported basis was $(247) million; on an adjusted basis, operating income (loss) from continuing operations was $(230) million;
  • Earnings (loss) per share from continuing operations was $(0.71). Adjusted earnings (loss) per share from continuing operations was $(0.57); and
  • VF ended the first quarter of fiscal 2021 with inventories up 2 percent, approximately $2.8 billion of cash and short-term investments in addition to $2.23 billion remaining under VF’s revolving credit facility; the company also returned $187 million to shareholders through dividends.

“VF is built for this moment, which is what gives us continued confidence and optimism,” said Steve Rendle, VF’s chairman, president and CEO. “Our financial and operational rigor, the affinity consumers have for our iconic brands, and the progress we’ve made in recent years with our digital transformation have us well-positioned to not only manage the complexities of the current environment but to drive long-term growth. As we continue through our fiscal year, we’ll build on the strengths we’re already seeing in the core elements of our strategy, including maintaining our strong cash and liquidity position and further accelerating our digital business worldwide, especially in China.”

COVID-19 Outbreak Update
As the global impact of COVID-19 continues, VF remains focused on a people-first approach prioritizing the health and well-being of its employees, customers, trade partners, and consumers. 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, implementing health and safety measures including social distancing and quarantines.

All VF retail stores in the APAC region, including Mainland China, re-opened during the first quarter. Over 90 percent of VF’s retail stores in the EMEA region re-opened during the first quarter with most of the stores that remained closed located in the UK. In North America, 75 percent of all retail stores were open at the end of the first quarter. Additional stores have re-opened since the end of the quarter partially offset by over 120 retail stores that have since temporarily re-closed due to localized resurgence of COVID-19 outbreaks and resulting government action and public health advisories. VF’s wholesale customers in APAC, North America and EMEA have re-opened most of their retail stores.

The majority of VF’s supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which can result in product delays. VF is working with its suppliers to minimize disruption. VF’s distribution centers are operational in accordance with local government guidelines but are experiencing intermittent disruptions while maintaining enhanced health and safety protocols.

First Quarter Fiscal 2021 Income Statement Review

  • Revenue decreased 48 percent (down 47 percent in constant dollars) to $1.1 billion driven by store closures and lower consumer demand as a result of the COVID-19 outbreak and related government actions and regulations.
  • Gross margin decreased 340 basis points to 52.9 percent, primarily driven by elevated promotional activity to clear excess inventory, partially offset by a favorable mix shift toward higher-margin businesses. On an adjusted basis, gross margin decreased 220 basis points to 54.1 percent.
  • Operating income (loss) on a reported basis was $(247) million. On an adjusted basis, operating income (loss) was $(230) million. Operating margin was (22.9) percent. Adjusted operating margin was (21.4) percent.
  • Earnings (loss) per share was $(0.71) on a reported basis. On an adjusted basis, earnings (loss) per share was $(0.57).

Sales of $1.1 billion came in above Wall Street’s consensus target of $982 million. The adjusted loss from continuing items of 57 cents a share topped Wall Street’s consensus target of a loss of 67 cents.

Balance Sheet Highlights
Inventories were up 2 percent compared with the same period last year. During the quarter, VF returned approximately $187 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 2021 Outlook
Due to the uncertainty of the duration and severity of COVID-19, governmental actions and regulations in response to the pandemic and the speed with which the pandemic is developing and impacting VF, its consumers, customers and suppliers, it is not possible to provide a financial outlook for full-year fiscal 2021 at this time. However, second-quarter fiscal 2021 revenues are expected to be down less than 25 percent and full-year fiscal 2021 free cash flow is still expected to exceed $600 million.

Photo courtesy Apparel Resources