The acquisitions of Nautica, Vans, Kipling, and Napapiji added $126 million to the top line for VF Corporation, but it was another exceptional quarter for The North Face that helped establish the companys Outdoor Coalition as the darling of the corporation. Nautica contributed $115 million of the acquisition-aided growth, but Vans should be a bigger piece of the contribution going forward as only three days of sales were counted toward VFCs quarter.
VFC saw just 0.8% of organic sales growth in the quarter as a 6% decline in the Jeanswear business almost offset gains elsewhere. Total second quarter sales rose 11.9% to $1.27 billion from $1.13 billion in the year-ago period.
Net income increased 20.3% to $90.1 million, or 80 cents per diluted share, from $74.9 million, or 68 cents per diluted share, in the year-ago period. Earnings include a benefit of $10.4 million (six cents per share) related to the sale of the Playwear business.
Sales in the Outdoor Coalition business jumped 20.6% in the quarter to $146 million from $121 million, or gaining nearly 12% excluding the acquisitions of Vans, Kipling, and Napapijri. Those new brands, which added $11 million to the Coalition top line, join The North Face, Eastpak, and Jansport to form the ODC business. The acquired brands are expected to contribute approximately $275 million to sales and EPS of five cents per share for the year. The ODC business was also seen improving gross margin for the total company.
The North Face saw sales increase 52% during the quarter, with Outerwear (including Fleece), Daypacks, and Trail Running and Multi-Sport Footwear as key drivers, according to Mike Egeck, who was recently promoted to President of VF Outdoor Americas. He said they started shipping Daypacks earlier this year, something they learned from the Jansport business.
Egeck told BOSS that Footwear was up about 34% in the first half, while Sportswear grew 40% and Outerwear jumped nearly 65%, driven by strong Rainwear sales. Fall bookings at TNF were up 47% in the U.S. at quarter-end and grew 28% in the International business. The North Face is forecasting Footwear growth at 62% for the year.
The Packs business “declined slightly” in the quarter, with the U.S. business off 2.0% and International up 4.0%. The business is expected to increase for the year, with growth driven by travel and apparel products. Kipling is expected to add additional growth.
Egeck said the Packs business was roughly 60/40 U.S. to Europe in the first half and looks to do about 50% of its business in the back half of the year. He said that Jansport will be up 9% to 10% for the year. “The early read on Back-to-School is looking good,” he said.
Much to our surprise, we found that Apparel is now almost 40% of the Jansport business in the U.S. Egeck said much of it is custom apparel in the bookstore business, but that VF Corp. has a real vision to expand their brands beyond the categories where they currently dominate. “Well be driving toward expansion into new product categories, particularly Jansport,” said Egeck. “Well take the ones were able to stretch and take them into additional categories.” He said Vans was another key opportunity for new category expansion.
Two new TNF stores, in Amsterdam and Hong Kong, were added during the quarter, bringing the total retail store count to six in Europe and seven in the U.S. New stores in Boston, Milan and Helsinki are on plan to open in the third quarter. Comparable store sales for the TNF stores in the U.S. were up 10% in the first half.
In other TNF news, the company announced that Steve Rendle, who joined TNF in 1999, has been appointed to the position of president, The North Face Americas, reporting to Mike Egeck. Todd Spaletto was promoted to VP of U.S. Sales, replacing Rendle.
“We have a very deep team here at The North Face,” said Egeck. “It wasnt hard to imagine that we could fill the positions internally.”
Todd Spaletto, Todd Yates, VP Marketing and Business Development, Jim Gerson, VP RD&D, Dave Sweet, VP Retail, Patty Pierce, Director, of HR, and Rick Wood, General Manager Canada, will report to Steve Rendle.
Todd Spaletto joined TNF in May 2003 as National Sales Director after transferring from JanSport. He will oversee all U.S. wholesale business. Reporting to Todd will be Courtney Tarantino, Sales Support Coordinator, Johnny Hawthorne, Director of Sales, Footwear, Leslie Meier, Sales Director, Eastern Region and Ron Haney, Director Sales Planning.
Imagewear Coalition sales grew 11% for the period to $173 million from $156 million in Q2 last year. VFC said Licensed Apparel “continued its strong growth”, posting sales growth of 19% for the period to approximately $59 million. Occupational apparel rose 10% to $114 million, the first improvement in the sales trend in several years.
VFC said they continue to expect another strong year in sales and earnings in 2004, with earnings per share increasing approximately 8% on a sales increase in the 12% to 15% range, a total that could hit $6 billion for the year. Third quarter sales are seen increasing 20% to 25%, delivering a 10% increase in earnings per share for the period.
