VF Corp. saw cost cuts, improved inventory management and a double-digit revival from several key brands drive profit growth in the first quarter versus a year-ago period, when earnings and revenue slid amidst a tough trading environment.

 

For the first quarter ended March 31, consolidated first quarter net sales improved slightly to $1.75 billion from $1.73 billion a year ago, but the cost-saving measures propelled earnings for the quarter, easily outpacing most analysts predictions. Net income for the quarter jumped 62.8% to $163.5 million, or $1.46 per share, compared to net income of $100.4 million, or 91 cents per share, in the year-ago period. Much of the strength can be attributed to VF Corps Outdoor and Action Sports segment, which reported revenue growth of 10% -on notable strength from The North Face and Vans, which grew 9% and 20%, respectively.

 

VFCs Contemporary Brands segment also turned in a strong quarter, with sales surging 16.2%.  The Jeanswear segment sank 9.8%, primarily due to the Q2 2009 shuttering of non-core programs.  VFCs Imagewear segment slipped 2.4% but management said it expects a return to growth in the second quarter. Operating earnings and margins remained stable.

 

VFCs International sales improved 2%, but declined 5% on a constant-currency basis. Solid results from the companys Asia, Mexico, South America and Canada region were offset by continued difficult market conditions affecting the companys European Jeanswear business and exit of its mass market business in Europe. Notably, VFC reported 31% growth in the Asia business on double-digit strength from Vans, Lee and The North Face brands.

 

Speaking on the China region, Karl Heinz Salzburger, president of VF International, said the company has seen organic growth in current stores and additional growth from expanded distribution. For the Europe region, management maintained that bookings were up in larger countries like Germany, Central Europe, Scandinavia and the U.K., while smaller regions such as Greece and Portugal have seen more softness.

 

Direct-to-consumer revenues increased 23% for the quarter, driven primarily by new store openings and strong comps. VFC opened 16 new stores during Q1, bringing the total store count to 766 at quarter-end.

 

Gross margins improved by 450 basis points to a record 46.7% of sales, an improvement management attributed to three factors: lower product costs, margin expansion within the retail stores and cleaner inventories.

 

Outdoor/Action Sports Segment Earnings Up 50%; Asia Drives Intl Sales

Like last year, VF Corps strongest performing segment for the first quarter was its Outdoor and Action Sports coalition, which reported an increase in sales of 9.8% to $678.6 million from $618.3 million a year ago. Earnings for the segment improved nearly 50% to $132.7 million from $88.6 million a year ago with margins improving almost 20% despite notable increase in marketing expenses and other brand-building investments.  As noted, the segment recorded global revenue growth from its two largest brands-The North Face (+9%) and Vans (+20%)


Total revenues in the Americas businesses rose 11% while International sales improved by 8%. The Outdoor and Action Sport segment also achieved very strong increases in operating margins within the Europe business. Driven by double-digit growth from The North Face, Vans, and Napapijiri, Kipling and lucy brands, direct-to-consumer sales skyrocketed 28% for the quarter.


Looking ahead, VF Corp. said consolidated full winter bookings are up sharply with double-digit increases in most of the Outdoor and Action Sports brands in Europe and Asia. Notably, brand bookings for The North Face and Vans are up 25% and 20%, respectively, which management said points to strong yearly results for each brand. Management also noted strong bookings from Napaijiri and Kipling.


Company Boosts Guidance; Ups Investment Spend…


Regarding outlook, management boosted guidance thanks to strengthening trends across business. Revenue guidance was raised to between 3% and 4% growth, up from prior guidance of between 2% and 3%, which management said supports an increase in EPS guidance to about $5.90 versus previous guidance of between $5.60 and $5.70.  Gross margins are expected to increase 170 basis points from the year-ago period to 46% of sales.


As a result of the stronger-than-expected Q1 results, management said in a conference call with analysts that VF Corp. would be committing an extra $35 million in investment spending behind core brands, bringing total spending to $85 million. In February, VF Corp. committed an additional $50 million toward its biggest and most profitable opportunities-specifically its Vans and The North Face brands and expansion in China.


Management said for The North Face, the additional expenditures would go towards driving TNF market share in Europe; leveraging the brands activity based model to reach new consumer segments; and boosting global product development and innovation platforms. For the Vans brand, VF Corp. will initiate a multi-faceted, high-impact media campaign in key locations across Europe; launch new in-store events; enhance visual merchandising in Europe; and accelerate new digital innovations, among others initiatives.