VF Corp. reported results in its fiscal second quarter ending October 1 that came in line with Wall Street targets but lowered its EPS guidance for the full year due to foreign currency fluctuations as well as heightened inventory levels and promotional activity in the marketplace.

Q2 FY23 Financial Highlights

  • Revenue $3.1 billion, declined 4 percent (up 2 percent in constant dollars) with big four brands down 5 percent (up 1 percent in constant dollars) and the balance of the portfolio up 4 percent (up 13 percent in constant dollars). The North Face revenue, $1.0 billion, up 8 percent (up 14 percent in constant dollars. Vans revenue, $1.0 billion, down 13 percent (down 8 percent in constant dollars);
  • Gross margin 51.4 percent, down 230 basis points. Adjusted gross margin 51.5 percent, down 240 basis points;
  • Operating margin (2.9) percent, down 2,040 basis points. Adjusted operating margin 12.3 percent, down 440 basis points;
  • Earnings (loss) per share (EPS) $(0.31), down 126 percent. Adjusted EPS $0.73, down 34 percent; 
  • Return of $194 million to shareholders through cash dividends; and

Revenue of $3.1 billion was in line with Wall Street’s consensus target. Adjusted EPS of 73 cents was just off Wall Street’s consensus target of 74 cents.

H1 FY23 Financial Highlights

  • Revenue $5.3 billion, down 1 percent (up 4 percent in constant dollars) with big four brands down 2 percent (up 3 percent in constant dollars) and the balance of the portfolio increasing 6 percent (up 14 percent in constant dollars). The North Face revenue, $1.4 billion, up 15 percent (up 21 percent in constant dollars). Vans revenue, $1.9 billion, down 10 percent (down 6 percent in constant dollars);
  • Gross margin 52.4 percent, down 240 basis points. Adjusted gross margin 52.6 percent, down 250 basis points;
  • Operating margin (0.5) percent, down 1,460 basis points. Adjusted operating margin 8.5 percent, down 420 basis points;
  • Earnings (loss) per share $(0.45), down 129 percent. Adjusted EPS $0.81, down 41 percent;
  • Return of $388 million to shareholders through cash dividends.

FY23 Financial Outlook

  • VF is maintaining its constant dollar revenue outlook but revising its earnings outlook to reflect increased negative impacts from foreign currency fluctuations as well as heightened inventory levels and increased promotional activity in the marketplace;
  • Total VF revenue is up 5 percent to 6 percent in constant dollars, unchanged from the previous outlook;
  • Adjusted gross margin iw down 100 basis points to 150 basis points, compared to the previous outlook of down 50 basis points;
  • Adjusted operating margin 11.0 percent, compared to the previous outlook of approximately 12.0 percent;
  • Adjusted EPS is now expected to be in the range of $2.40 to $2.50, versus $3.18 in the prior year and compared to the previous outlook of $2.60 to $2.70;
  • Adjusted cash flow from operations is at least $0.9 billion, compared to the previous outlook of $1.0 billion. Capital expenditures are approximately $230 million versus the previous outlook of $240 million, excludes the impact of an $876 million payment VF made on October 19, 2022 to the IRS for the dispute regarding the timing of income inclusion associated with VF’s acquisition of Timberland in 2011, as previously disclosed;

VF’s FY23 outlook assumes the following:

  • No additional significant COVID-19-related lockdowns in any key commercial or production regions; and
  • No significant worsening in global inflation rates and consumer sentiment

Steve Rendle, chairman, president and CEO, VF Corp., said, “VF’s balanced performance in Q2 demonstrates the resiliency of our brand portfolio against a more disrupted global marketplace. Our purpose-built portfolio of iconic, deeply-loved brands continues to benefit from tailwinds in the outdoor, active, streetwear and workwear spaces while we also actively address the near-term challenges at Vans, the ongoing COVID-related disruption in China, and the broader macro-economic and geopolitical headwinds, which have created tremendous uncertainty for all businesses and consumers.

“In the near term, in light of the challenging environment, we are acting proactively to generate increased revenue through the balance of the year while protecting profitability by tightly controlling all non-strategic spend. I am confident in our ability to deliver on our targets and to maximize the potential of all our brands when the environment improves. We will remain focused on the things we can control and will continue leveraging VF’s unique business model and competitive strengths to drive consistent, sustainable and profitable growth.”

Second Quarter Fiscal 2023 Income Statement Review

  • Revenue decreased 4 percent (up 2 percent in constant dollars) to $3.1 billion driven by increases in the EMEA and APAC regions partially offset by lower sales in the Americas region;
  • Gross margin decreased 230 basis points to 51.4 percent, primarily driven by higher costs and promotional activity partially offset by price increases. On an adjusted basis, gross margin decreased 240 basis points to 51.5 percent;
  • Operating income (loss) on a reported basis was $(90.8) million. Operating margin on a reported basis was (2.9) percent. On an adjusted basis, operating income decreased 29 percent (down 22 percent in constant dollars) to $378.7 million. Adjusted operating margin decreased 440 basis points to 12.3 percent; and
  • Earnings (loss) per share was $(0.31) on a reported basis. On an adjusted basis, earnings per share decreased 34 percent (down 27 percent in constant dollars) to $0.73.

COVID-19 Update
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 in certain locations, 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. Raw material suppliers in China are currently operational, though the 8-week lockdown in China during VF’s first quarter resulted in logistics challenges which continue to contribute to ongoing product delays. Suppliers are complying with local public health advisories and governmental restrictions. Most final product manufacturing and assembly suppliers are largely back to normal operating levels. VF is working with its suppliers to minimize disruption and is employing expedited freight strategically as needed. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

In North America, no stores were closed during the second quarter. Currently, all stores are open. In the EMEA region, no stores were closed during the second quarter due to COVID-19. Currently, all stores are open. In the APAC region, including Mainland China, no stores were closed at the beginning of the second quarter with a peak of 7 percent of stores (including partner doors) closed and an average of 3 percent of stores closed throughout the quarter. At the end of the second quarter, 4 percent of stores were closed and, as of today, 7 percent of stores are closed.

VF is continuing to monitor the evolution of COVID-19 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.

Balance Sheet Highlights
Inventories were up 88 percent compared with the same period last year, partially driven by an increase of in-transit inventory of approximately $510 million as VF modified terms with the majority of its suppliers in the first quarter of fiscal 2023 to take ownership of inventory at the point of shipment rather than the destination. Accounts payable increased 91 percent, which was largely driven by the increase of in-transit inventory. VF returned approximately $194 million of cash to shareholders through dividends during the quarter.

Dividend Declared
VF’s Board of Directors declared a quarterly dividend of $0.51 per share, reflecting a 2 percent increase over the previous quarter’s dividend. This dividend will be payable on December 20, 2022, to shareholders of record at the close of business on December 12, 2022. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled cash dividend

VF’s brands include The North Face, Timberland, Vans, Dickies, Smartwool, Icebreaker, Altra, Jansport, and Kipling.

Photo courtesy VF Corp./Icebreaker