Sales at full-price Vans and The North Face stores helped drive record sales and earnings per share at VF Corp. for the second quarter, prompting the company to raise its earnings guidance for the year. Heavy spending on opening new stores cut into VFs profits, but the strategy is producing impressive results both at home and abroad that should boost profits in the back half of the year. Companywide, VFC reported Q2 revenues rose 11% to $1.68 billion with currency benefits accounting for three points of the growth. Income from continuing operations dipped 1.7% to $104 million from $105.8 million a year ago. Diluted EPS reached 94 cents against 93 cents last year, exceeding guidance.
Despite the impressive results, company President and CEO Eric Wiseman told analysts in a conference call that “conditions have been even more difficult than we could have foreseen. We have areas of our business that have not performed as strongly as we had planned. Make no mistake, it is tough out there.”
VFs retail revenues rose 15% during the quarter, led by both organic growth and new openings of TNF and Vans stores. Kipling, Napapijiri, John Varvatos, and Lee brand retail stores turned in double-digit growth. Through the first half of 2008, VFC opened 38 of the 90 stores it expects to open during the full year. For the second half of the year, the company expects retail revenues to grow by more than 20% from last year.
“Stores like … our Napapijiri stores, our North Face stores, our brand stores are having very, very strong comps in this environment,” said Wiseman. “Our pure outlet stores are not fairing as well.”
International revenues increased 23% in the quarter and represented 27% of total revenues. For the first half of 2008, international revenues increased 21%. For the year, VF expects international revenue growth of approximately 19%.
Despite softening conditions in the U.K., Spain and Italy, Wiseman said growth in Asia, Russia and South America would keep international sales growing at 17% in the back half. Traction was said to be improving particularly in China, Russia, India and parts of Mexico and Latin America.
Inventories rose by 10% in the quarter, but more than half of the increase was due to the companies VF acquired in the second half of 2007, where days are considerably higher than VF averages
The company raised its full-year earnings growth target for 2008 from 10% to 12%, or approximately $6.05 per share. That assumes lower comp sales growth at owned-retail stores than was achieved in the first half of the year and is based in part on strong bookings.
“We anticipate revenues for 2008 of $7.9 billion, representing an increase of over 9%,” said Wiseman. “We are looking forward to record third quarter results, and currently anticipate that third quarter revenues and earnings per share will both increase approximately 9%. Given our full year guidance, this indicates stronger earnings per share growth in the fourth quarter, reflecting the continued shift of our revenue mix toward more owned retail, the seasonality of our Outdoor business and a significant improvement in Sportswear profitability.”