Boosted by strong international sales of The North Face and Vans, VF Corp. posted record profits in the third quarter, raised its guidance for 2010 and said it will increase its spending on marketing by half in the fourth quarter from a year earlier.
“As we entered 2010 we were cautious about the outlook for many economies around the globe and while the economic outlook remains uncertain, the outlook for VF couldn't be brighter,” said VF Corp. Chairman and CEO Eric Wiseman.
“That is because even in uncertain times strong companies with strong brands and a broad portfolio of opportunities will continue to succeed.”
Company executives said revenues at The North Face and Vans rose by 17% and 19% respectively, pushing quarterly revenues at VFC’s Outdoor & Action Sports Coalition past the billion dollar mark for the first time. Coalition revenues reached $1.05 billion in the quarter, up 14.0% from $916.4 million in the third quarter of 2009. Sales growth was even stronger on a constant currency basis, clocking in at 17% for the period.
Spring bookings for The North Face are up 17% in the U.S. and growing equally fast in Europe and Asia. Sales for the Kipling and Napapijri brands grew strongly, while growth at Lucy and JanSport were both up in the high teens.
Total direct-to-consumer revenues for the Outdoor & Action Sports Coalition rose 18% in the quarter, reflecting strong growth by The North Face, Vans and Lucy brands. The company has opened 62 of 85 new stores planned for the year, bringing its total of owned store to 775.
In Europe, the Middle East and Asia, comp store sales for The North Face and Vans rose by more than 20%. “The strong performance is driving double-digit increases in our spring pre-season orders for both brands,” said Karl Salzburger, president of international business for VFC. “North Face is up about 15% and Vans is up about 25%. So we are confident that our momentum will continue into next year.”
VFC’s operating income rose by 21% with operating margins increasing by more than a point to nearly 24% in the quarter. Increased marketing expense pushed SG&A up 150 basis points as a percentage of revenue. Wiseman said Asian sourcing costs are coming in lower than expected despite higher than expected cotton prices.
VFC increased its marketing spend by 35% to $31 million in the quarter and expects to spend another $45 million in the fourth quarter, up 50% from the fourth quarter of 2009. More than half that increase will go toward promoting The North Face and Vans brands by sponsoring new athletes, increasing consumer advertising at the Winter X games and opening more stores in China, where VFC sales rose 37% in the third quarter. VFC expects to boost its marketing spend this year to $100 million from $85 million in 2009.
In China, sales at the Jeanswear Coalition, The North Face, Vans and Kipling brands grew by 40%, 30%, 44% and 100% respectively. VFC is on track to increase its door count in China by 40% to 1,400 stores, which is helping drive double-digit bookings growth.
“Asia represents a billion dollar opportunity for VF, and we are investing accordingly,” said Wiseman.” We’re particularly excited about the unique opportunities that The North Face and Vans brands give us to build new categories outdoor and action sports in this dynamic market.”
Wiseman said VFC now expects 2010 revenues to increase by more than 5% to approximately $7.6 billion, versus prior guidance of 4% to 5%. Earnings per share are now expected to grow by more than 20% to a range of $6.25 to $6.30 per share, up from previous guidance of $6.10 per share. The new guidance represents an increase of over 20% from 2009 earnings per share of $5.16 (before impairment charges). SG&A as a percentage of revenues should come in around 33.5%, up 110 basis points from 2009.
In 2011, VFC expects gross margins to remain near this year’s record level of 46.5% as the percentage of revenues earned from the more profitable international and direct businesses continue to grow. Management attributed a 220 basis point improvement in gross margins this year to lower productions costs, better gross margins at the company’s owned-retail stores and cleaner inventory. To maintain margins in its Jeanswear and other cotton heavy products, VFC will raise prices next year.
“With regard to pricing, the current consensus from both retailers and wholesalers is that some price increases are inevitable next year and certainly many of the brands across our diverse portfolio are planning for selective price increases,” said Wiseman.
