VF Corp. reported sales in its fiscal fourth-quarter beat top-line estimates but earnings came in slightly below targets. Sales in the quarter grew 19 percent on a currency-neutral basis, led by a 23 percent gain by The North Face. Vans’ sales grew 10 percent and Timberland’s sales gained 19  percent on a currency-neutral basis.

Fourth Quarter Fiscal 2021 Income Statement Review
Revenue in the fourth quarter ended April 3 increased 23 percent (up 19 percent in constant dollars) to $2.6 billion. Wall Street’s consensus estimate was $2.51 billion.

Excluding the impact of acquisitions, revenue increased 16 percent (up 12 percent in constant dollars) driven by VF’s largest brands, e-commerce growth and an increase in the APAC region, which experienced a significant negative impact from COVID-19 in the prior-year period. The fourth quarter of fiscal 2021 also included an extra week when compared to the fiscal 2020 period due to VF’s 53-week fiscal 2021.

Gross margin decreased 100 basis points to 52.1 percent, primarily driven by elevated promotional activity to clear excess inventory and the timing of net foreign currency transaction activity. On an adjusted basis, gross margin decreased 120 basis points, including a 60 basis point positive impact from acquisitions, to 52.7 percent.

Operating income on a reported basis was $122 million. On an adjusted basis, operating income increased 98 percent to $173 million, including a $34 million contribution from acquisitions. Operating margin on a reported basis increased to 4.7 percent. Adjusted operating margin increased 260 basis points, including a 100 basis point positive impact from acquisitions, to 6.7 percent.

Earnings per share was $0.16 on a reported basis. On an adjusted basis, earnings per share increased 169 percent (up 150 percent in constant dollars) to $0.27, including a $0.06 contribution from acquisitions. Wall Street’s consensus estimate was 29 cents.

Segment Performance In The Quarter
By segment, Outdoor revenues grew 25 percent in the quarter to $1.06 billion from $846.3 million and grew 20 percent on a currency-neutral basis. Outdoor operating profit came to $58.68 million against a loss of $9.02 million a year ago. The segment includes Altra, Icebreaker, Smartwool, The North Face, and Timberland.

On a currency-neutral basis, The North Face’s sales grew 23 percent globally, gained 12 percent in the Americas, climbed 19 percent in EMEA, and jumped 93 percent in APAC. On a currency-neutral basis, Timberland’s sales grew 19 percent globally, gained 21 percent in the Americas, increased 2 percent in EMEA, and jumped 57 percent in APAC.

Active segment revenues reached $1.26 billion against $1.03 billion, up 22 percent on a reported basis and 19 percent on a currency-neutral basis. Active operating earnings rose 17.0 percent to $180.0 million from $154.6 million. The segment includes Eagle Creek, Eastpak, JanSport, Kipling, Napapijri,  Supreme, and Vans.

On a currency-neutral basis, Vans sales grew 10 percent globally, gained 13 percent in the Americas, declined 4 percent in EMEA, and jumped 24 percent in APAC.

Work sales were $259.5 million, gaining 23 percent on a reported basis and 20 percent on a currency-neutral basis. Work posted an operating profit of $13.5 million against a loss of $1.75 million a year ago. Brands include Bulwark Protection, Dickies,
Horace Small, Kodiak, Red Kap, Terra, VF Solutions, and Walls.

On a currency-neutral basis, Dickies’ sales grew 19 percent globally, gained 9 percent in the Americas, declined 3 percent in EMEA, and jumped 107 percent in APAC.

Full Year Fiscal 2021 Income Statement Review
Revenue decreased 12 percent (down 14 percent in constant dollars) to $9.2 billion. On an adjusted basis, excluding the impact of acquisitions, revenue decreased 13 percent (down 15 percent in constant dollars), driven by store closures and lower consumer demand as a result of the COVID-19 outbreak and related government actions and regulations. The fourth quarter of fiscal 2021 also included an extra week when compared to the fiscal 2020 period due to VF’s 53-week fiscal 2021.

Active segment revenue decreased 15 percent (down 17 percent in constant dollars) including a 15 percent (16 percent in constant dollars) decrease in Vans brand revenue and a 3 percentage point revenue growth contribution from acquisitions. Outdoor segment revenue decreased 11 percent (down 13 percent in constant dollars) including a 9 percent (11 percent in constant dollars) decrease in The North Face brand revenue. Work segment revenue increased 7 percent (up 6 percent in constant dollars) including a 9 percent (7 percent in constant dollars) increase in Dickies brand revenue.

International revenue decreased 7 percent (down 11 percent in constant dollars) including a 1 percentage point revenue growth contribution from acquisitions. Greater China revenue increased 24 percent (up 20 percent in constant dollars).

Direct-to-Consumer revenue decreased 5 percent (down 7 percent in constant dollars) including a 3 percentage point revenue growth contribution from acquisitions. Digital revenue increased 67 percent (up 64 percent in constant dollars) including a 9 percentage point revenue growth contribution from acquisitions.

Gross margin decreased 260 basis points to 52.7 percent, primarily driven by elevated promotional activity to clear excess inventory and the timing of net foreign currency transaction activity, partially offset by a favorable mix shift toward higher-margin businesses. On an adjusted basis, gross margin decreased 220 basis points, including a 10 basis point positive impact from acquisitions, to 53.3 percent.

Operating income on a reported basis was $608 million. On an adjusted basis, operating income decreased 45 percent (down 47 percent in constant dollars) to $742 million, including a $34 million contribution from acquisitions. Operating margin on a reported basis decreased 220 basis points to 6.6 percent. Adjusted operating margin decreased 480 basis points, including a 20 basis point positive impact from acquisitions, to 8.0 percent.

Earnings per share were 91 cents on a reported basis. On an adjusted basis, earnings per share decreased 51 percent (down 54 percent in constant dollars) to $1.31, including a 6 cents per share contribution from acquisitions.

“I could not be more pleased with how our organization navigated fiscal 2021,” said Steve Rendle, chairman, president and chief executive officer. “Early in the year, we took important actions to protect our people and the enterprise, while maintaining investments to drive our transformation and accelerate organic growth. At the same time, we took bold, forward-looking actions to spark additional growth and value creation. As a result, we are exiting this year in a position of strength with broad-based momentum across the portfolio.”

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

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

In North America, approximately 15 percent of stores were closed at the end of the third quarter. The majority of the closures were Vans® stores, predominantly based in California. In addition, other stores were operating with reduced capacity. Since that time, most stores have re-opened, including all VF-owned stores in California, with less than 5 percent of stores closed at the end of the fourth quarter. Currently, less than 5 percent of stores remain closed.

In the EMEA region, approximately 50 percent of stores were closed at the end of the third quarter. Since that time additional stores have been re-closed, with approximately 60 percent of stores closed at the end of the fourth quarter. Some stores in the EMEA region have re-opened since the end of the quarter and currently, approximately 20 percent of stores are closed.

Nearly all of VF’s owned retail stores in the APAC region, including Mainland China, were open during the quarter and remain open.

VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

Balance Sheet Highlights
Inventories were down 18 percent compared with the same period last year. In fiscal 2021, VF returned approximately $760 million of cash to shareholders through dividends. Cash flow provided by operating activities from continuing operations was approximately $1.2 billion in fiscal 2021 and free cash flow from continuing operations was approximately $1.0 billion. VF ended fiscal 2021 with approximately $1.45 billion of cash and short-term investments in addition to more than $2.2 billion remaining under VF’s revolving credit facility. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program and did not repurchase any shares in fiscal 2021. VF has $2.8 billion remaining under its current share repurchase authorization.

Full Year Fiscal 2022 Outlook
VF’s outlook for full-year fiscal 2022 is on an adjusted continuing operations basis unless otherwise noted and includes the following:

  • Revenue is expected to approximate $11.8 billion, reflecting growth of approximately 28 percent, including an approximate $600 million contribution from the Supreme brand. By segment, revenue for Outdoor is expected to increase between 23 percent and 25 percent, revenue for Active is expected to increase between 34 percent and 36 percent, and revenue for Work is expected to increase between 10 percent and 12 percent.
  • International revenue is expected to increase between 25 percent and 27 percent. By geographic region, in the EMEA region, revenue is expected to increase between 29 percent and 31 percent. In the Asia Pacific region, revenue is expected to increase between 18 percent and 20 percent. And, in the Americas (non-U.S.) region, revenue is expected to increase between 28 percent and 30 percent.
  • Direct-to-consumer revenue is expected to increase between 38 percent and 40 percent, including Digital revenue growth of between 29 percent and 31 percent.
  • Adjusted gross margin is expected to exceed 56.0 percent, which represents an estimated increase of more than 270 basis points.
  • Adjusted operating margin is expected to approximate 12.8 percent, which represents an estimated increase of approximately 480 basis points.
  • Adjusted earnings per share is expected to approximate $3.05, including an approximate $0.25 contribution from the Supreme brand.
  • Adjusted cash flow from operations is expected to exceed $1.0 billion.
  • Other full-year assumptions include an effective tax rate of approximately 15 percent and capital expenditures of approximately $350 million.

Photo courtesy VF Corp.