VF Corp. reported earnings 62 percent on an adjusted basis in the first quarter ended June 30, to 43 cents a share, well above Wall Street’s consensus estimate of 33 cents. Sales grew 23 percent on a reported basis and were up 21 percent in constant dollars. Currency-neutral sales jumped 32 percent at Vans and 5 percent at The North Face.

Highlights of the period include:

  • Revenue from continuing operations increased 23 percent (up 21 percent in constant dollars) to $2.8 billion; revenue from continuing operations increased 12 percent (up 10 percent in constant dollars) excluding the revenue contribution from acquisitions;
  • Active segment revenue increased 25 percent (up 22 percent in constant dollars) including a 35 percent (32 percent in constant dollars) increase in Vans brand revenue; Outdoor segment revenue increased 6 percent (up 3 percent in constant dollars) including an 8 percent (5 percent in constant dollars) increase in The North Face brand revenue and a 6-percentage-point revenue growth contribution from acquisitions;
  • International revenue increased 27 percent (up 22 percent in constant dollars), including a 13-percentage-point revenue growth contribution from acquisitions;
  • Direct-to-consumer revenue increased 22 percent (up 20 percent in constant dollars), including a 6-percentage-point revenue growth contribution from acquisitions; Digital revenue increased 54 percent (up 50 percent in constant dollars), including a 21-percentage-point revenue growth contribution from acquisitions;
  • Gross margin from continuing operations increased 70 basis points to 50.3 percent; on an adjusted basis, gross margin increased 90 basis points to 50.5 percent; excluding the impact of acquisitions, on an adjusted basis, gross margin increased 170 basis points to 51.3 percent;
  • Earnings per share from continuing operations was $0.40. Adjusted earnings per share from continuing operations increased 62 percent (up 56 percent in constant dollars) to $0.43, including a $0.04 contribution from acquisitions;
  • Full year fiscal 2019 revenue is now expected to be in the range of $13.6 billion to $13.7 billion, reflecting an increase of 10 percent to 11 percent and,
  • Full year fiscal 2019 adjusted earnings per share is now expected to be in the range of $3.52 to $3.57, reflecting an increase of 12 percent to 14 percent.

“VF’s first quarter results were strong, driven by continued broad based acceleration across our core brands and platforms,” said Steve Rendle, chairman, president and chief executive officer. “We are executing well against our 2021 growth plan and continuing on our journey to reshape the portfolio and transform VF into a purpose-led, performance driven, consumer-centric organization focused on and committed to delivering superior returns to shareholders.”

Reportable Segment Change

In light of recently completed acquisitions, divestitures and organizational realignments, the company has changed its reporting structure to better support and assess the operations of the business. The company’s new reportable segments are Outdoor, Active, Work and Jeans. The company has recast historical financial information to reflect the new reportable segments. The recast historical financial information is included in the attached supplemental financial tables.

Discontinued Operations – Nautica Brand Business and Licensing Business

On April 30, 2018, the company completed the sale of its Nautica brand business. Accordingly, the company has classified the assets and liabilities of the Nautica brand business as held-for-sale through the date of sale and has included the operating results of this business in discontinued operations for all periods presented.

On April 28, 2017, the company completed the sale of its Licensed Sports Group (LSG) business, including the Majestic brand. In conjunction with the LSG divestiture, VF executed its plan to entirely exit the licensing business and completed the sale of the assets of the JanSport brand collegiate business in the fourth quarter of 2017. Accordingly, the company has removed the assets and liabilities of the licensing business as of the dates noted above and included the operating results of these businesses in discontinued operations for all periods presented.

The company’s after-tax net income from discontinued operations was $0.4 million in the first quarter of fiscal 2019, which includes the operating results of the Nautica brand business during the period through the date of sale.

Adjusted Amounts – Excluding Williamson-Dickie, Icebreaker and Altra Transaction and Deal Related Expenses and the Provisional Impact of U.S. Tax Legislation

This release refers to adjusted amounts that exclude transaction and deal-related expenses associated with the acquisitions of Williamson-Dickie, Icebreaker and Altra. Total transaction and deal-related expenses were approximately $19 million in the first quarter of fiscal 2019.

Adjusted amounts also exclude the provisional amounts recorded due to recent U.S. tax legislation. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. Measurement period adjustments related to the provisional net charge resulted in a benefit of approximately $3 million in the first quarter of fiscal 2019.

Combined, the above net charges negatively impacted earnings per share by 3 cents a share during the first quarter of fiscal 2019. All adjusted amounts referenced herein exclude the effects of these amounts.

First Quarter Fiscal 2019 Income Statement Review

  • Revenue increased 23 percent (up 21 percent in constant dollars) to $2.8 billion, including a $249 million revenue contribution from the Williamson-Dickie, Icebreaker and Altra acquisitions. Excluding acquisitions, revenue increased 12 percent (up 10 percent in constant dollars), driven by broad-based strength across VF’s international and direct-to-consumer platforms and Active and Work segments.
  • Gross margin improved 70 basis points to 50.3 percent, as benefits from a mix-shift toward higher margin businesses and continued focus on fundamentals were partially offset by the impact of acquisitions. On an adjusted basis, gross margin increased 90 basis points to 50.5 percent. Adjusted gross margin, excluding acquisitions, increased 170 basis points to 51.3 percent.
  • Operating income on a reported basis was $231 million. On an adjusted basis, operating income increased 57 percent to $250 million, including an $20 million contribution from acquisitions. Operating margin on a reported basis increased 130 basis points to 8.3 percent. Adjusted operating margin increased 200 basis points to 9.0 percent. Adjusted operating margin, excluding acquisitions, increased 210 basis points to 9.1 percent.
  • Earnings per share was $0.40 on a reported basis. On an adjusted basis, earnings per share increased 62 percent (56 percent in constant dollars) to $0.43, including a $0.04 contribution from acquisitions.

Among VF’s segments, Outdoor revenue were $568.6 million against $536.3 million, representing gain of 6 percent on a reported basis and 3 percent on a currency-neutral basis. Organic revenues were flat. The Outdoor segment showed an operating loss of $83.5 million against a loss of $62.0 million a year ago. Primary brands: The North Face, Timberland (excluding Timberland PRO), Smartwool, Icebreaker and Altra.

In the Active segment, sales reached $1.14 billion against $909.3 million, a gain of 25 percent on a reported basis and 22 percent on a currency-neutral basis. Organic revenues were up 25 percent. Operating profits reached $269.2 million, up 46 percent on a reported basis and 42 percent on a currency-neutral basis. Primary brands: Vans, Kipling, Napapijri, JanSport, Reef, Eastpak and Eagle Creek.

In the Work segment, sales were $442.6 million against $206.9 million, up 114 percent on both a reported and currency-neutral basis. Organic revenues were ahead 8 percent. Operating income reached $55.2 million against $34.2 million, up 62 percent on a reported and currency-neutral basis. Primary brands include: Dickies, Bulwark, Red Kap, Timberland PRO, Wrangler RIGGS, Walls, Terra, Kodiak and Horace Small.

Jeans revenues reached $603.8 million versus $587.9 million, up 3 percent on a reported basis and 2 percent on a currency-neutral basis. Organic revenues were up 3 percent. Operating earnings were $87.0 million against $81.3 million, up 7 percent on a reported basis and 5 percent on a currency-neutral basis. Primary brands include: Wrangler (excluding Wrangler RIGGS), Lee and Rock & Republic.

Balance Sheet Highlights

Inventories were up 20 percent compared with the same period last year. Excluding the impact of acquisitions, inventories increased 2 percent. The company has $4 billion remaining under its current share repurchase authorization.

Adjusted Full Year Fiscal 2019 Outlook

The following outlook for fiscal year 2019 is on an adjusted basis and has been updated to include the following:

  • Revenue is now expected to be in the range of $13.6 billion to $13.7 billion, reflecting an increase of 10 percent to 11 percent, and includes more than a $150 million negative impact from unfavorable foreign currency exchange rates relative to the prior outlook. This compares to the previous expectation of revenue between $13.45 billion and $13.55 billion, which reflected a 9 percent to 10 percent increase. By segment, revenue for Outdoor is expected to increase 6 percent to 8 percent; revenue for Active is expected to increase 13 percent to 14 percent; revenue for Work is expected to increase more than 35 percent and revenue for Jeans is expected to be about flat compared to the prior year.
  • International revenue is now expected to increase between 12 percent and 13 percent versus the previous expectation of a 13 percent to 15 percent increase. By geographic region, Europe revenue is expected to increase 12 percent to 13 percent (previously 13 percent to 15 percent); Asia Pacific revenue is expected to increase 14 percent to 15 percent (previously 15 percent to 17 percent) and Americas (non-U.S.) revenue is expected to increase 9 percent to 10 percent (previously 10 percent to 12 percent).
  • Direct-to-consumer revenue is now expected to increase between 11 percent and 13 percent versus the previous expectation of an 8 percent to 10 percent increase. Digital revenue is now expected to increase more than 30 percent versus the previous expectation of a more than 25 percent increase.
  • Gross margin is still expected to approximate 51 percent.
  • Operating margin is now expected to increase 70 basis points to about 13.4 percent, versus the previous expectation of about 13.2 percent.
  • Earnings per share are now expected to be in the range of $3.52 to $3.57, reflecting an increase of 12 percent to 14 percent, and include about a $0.06 negative impact from unfavorable foreign currency exchange rates relative to the prior outlook. This compares to the previous expectation of $3.48 to $3.53, which reflected an increase of between 11 percent and 13 percent.
  • Cash flow from operations is now expected to exceed $1.7 billion (up from $1.6 billion previously).
  • Other full year assumptions include an effective tax rate of approximately 16.5 percent (down from 17 percent previously) and capital expenditures of approximately $275 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of $0.46 per share, payable on September 20, 2018 to shareholders of record on September 10, 2018.

Photo courtesy Vans