Driven by strong growth for The North Face and Vans, VF Corp's Outdoor and Action Sports coalition delivered healthy sales and earnings gains in the fourth quarter. But gains at those brands were not enough to offset weakness at the company's other businesses that succumbed to tough macroeconomic conditions.
VF Corp's overall Q4 revenues decreased 2% to $1.91 billion, with nearly all the decline attributed to the effects of foreign currency translation. Income from continuing operations fell 29.5% to $115.9 million, or $1.05 a share. Included in the most recent quarter was a previously-announced charge of $41 million, or 30 cents a share, related to cost reduction actions. Earnings came in at the high-end of guidance provided in mid-January.
For the full year 2008, revenues increased 6% to $7.64 billion. Including the aforementioned charge, income from continuing operations dipped 1.7% to $602.7 million, or $5.42 a share.
The full year foreign currency translation benefit to revenues and earnings per share was $109 million and 15 cents per share, respectively.
Looking ahead, VF expects overall earnings in the first quarter to be in the 90 cents to 95 cents per share range, down from $1.33 a year ago, due to the stronger dollar, higher pension expense and weak economic environment. Results are expected to include 20 cents per share of costs related to a higher pension expense and a stronger dollar. Total revenue is projected to decline 5% to 7%. The company expects 2009 earnings per share will be flat with revenues down 3% to 4%.
“Throughout 2009 we will continue to aggressively manage costs and inventories while at the same time we'll invest prudently in the best growth opportunities for our brands both here and abroad,” said Eric Wiseman, chairman and chief executive, during the quarterly conference call.
The combined VF Outdoor and Action Sports coalition saw revenues increase 13% to $675.7 million in the quarter, or a 17% gain in constant dollars. Operating income rose 7% to $101.4 million and included $8.2 million in expenses related to cost reduction actions. The decline in operating margins in the quarter was due to cost reduction actions as well transaction-related currency fluctuations. For the year, sales in the Outdoor and Action Sports coalition rose 14.9% to $2.74 billion; operating profit climbed 15.7% to $454.2 million. VFC split the Coalition at year-end.
On the quarterly conference call with analysts, Steve Rendle, president, Outdoor Americas Coalition, noted that The North Face brand in the Americas “continues to show great momentum” and posted record sales and profits for the quarter and year. Sales grew 24% in Q4 and 20% in FY08. On the global basis, TNF achieved sales of just over $1.1 billion for the full year. The wholesale business for TNF in the Americas grew at double-digit rates with strong retail sell-through across all channels.
In Latin America, TNF saw “solid performance” with growth in Chile and new distribution partners added in Argentina, Brazil and Central America.
TNF'S direct-to-consumer business “saw strong growth as well,” with high-single-digits comp store growth and new stores performing above initial expectations. Five full-priced stores were added in 2008. TNF also launched a new marketing and e-commerce website in 2008.
TNF'S direct-to-consumer business “saw strong growth as well,” with high-single-digits comp store growth and new stores performing above initial expectations. Five full-priced stores were added in 2008. TNF also launched a new marketing and e-commerce website in 2008.
At Jansport, sharp declines in mass and mid-tier department store traffic hurt both the top and bottom line performance for the brand. But Rendle said Eagle Creek delivered “a very good year in both sales and profits despite a downturn in its core travel segment.”
Looking to '09, Rendle predicted strong market share gains across all product categories in the Outdoor coalition. The Outdoor coalition also plans to open eight new full priced stores and further expand its e-commerce platform.
Steve Murray, president of VF's Action Sports Americas Coalition, said domestic sales at Vans were up 13% in the year, with across-the-board increases in all channels and all product categories except snow equipment, a small part of the business.
Footwear sales for the year grew 11%, driven mainly by classics in core product lines, while apparel and accessories grew by almost 40% and gained momentum with both the independent skate channel and its two mid-tier department store partners.
The launch of a boys apparel line as well as the expansion of its signature skate lines designed in collaboration with key athletes were particularly successful. At wholesale, Murray said the core skate channel was the fastest growing sector, with Vans gaining market share and closing the year “as the clear market leader.”
In its direct-to-consumer business, sales grew 20% for the year with comp growth up 8%, driven mainly by full-price stores. Fourth quarter comps were up 9%. Twenty stores were opened during the year and another 30 were remodeled. Vans e-commerce revenues jumped 40% for the year.
With regard to Q4 specifically, Murray said Vans experienced “high volatility” in both wholesale accounts and in its own stores in the three or four weeks around Thanksgiving, but did see consumer behavior stabilize towards the middle and end of December. Murray said he is “cautiously optimistic” regarding 2009.
At Reef, sales in the core channel, which accounts for two-thirds of the business, were down 4% for the year and 11% for Q4, with the sandal market particularly competitive. In December, Reef's organization was realigned. Girls' apparel was moved to a licensed business, which Murray said will allow Reef “to refocus our efforts on the brands core competencies: sandals, T-shirts, head wear and board shorts.”
The VF Imagewear Coalition, which includes the Majestic, Red Cap and The Force brands, among others, saw revenues fall 12.5% in the quarter to $242.7 million.
The decline came principally in Activewear, reflecting a difficult environment in the licensed sports apparel business. Operating profits slumped 38.4% to $27.1 million and included expenses to align inventories as well as $2.0 million in expenses from cost reduction activities. In the full year, sales nudged up 1.0% to $991.1 million while earnings gave back 7.2% to $131.6 million.
Scott Baxter, president, Imagewear, said the Image business “continues to enjoy strong profitability and delivers healthy cash flows to VF.” The Activewear division saw “a sharp deceleration in the fourth quarter” due to the souring economy. However, the MLB business performed well throughout the year, and VFC opened a new baseball manufacturing and distribution facility in Pennsylvania to support the business. Its NFL business was helped by the Super Bowl win by the Pittsburgh Steelers, given the team's “national scope and fan base.”
Looking ahead, Baxter said VF is planning its Imagewear business “very conservatively” given the environment.
Revenues of the VF Contemporary Brands Coalition decreased 5.4% in the quarter, to $103.6 million as declines in Seven For All Mankind offset a 4% gain at the lucy business, which benefited from new store openings. Operating profits fell 34.6% to $13.1 million due to high markdowns at Seven For All Mankind. Full year sales climbed to $387.7 million from $142.3 million, reflecting the acquisition of the two brands in 2007, and profits were $53.7 million compared to $24.8 million in 2007.
