Strength across all business coalitions-along with cost cutting measures, international expansion and cleaner inventories-propelled VF Corporation to impressive growth for the second quarter as the branded lifestyle apparel manufacturer reported revenues that improved 7.7% on top of earnings that soared by almost 50%. VF management admitted in a conference call with analysts that Q2 results were partially inflated by a lackluster Q2 last year and Eric Wiseman, chairman and CEO of VFC, pointed out that there has been significant “deceleration” in the aisles following a first quarter that enjoyed a transitory revival within the retail sector.


Boosted largely by a resurgence of its Outdoor & Action Sports business and resumed growth from its Jeanswear business, VFC easily outshined conservative estimates by analysts. Wiseman said that revenues grew across all coalitions, while gross margins reached record levels and earnings per share hit “an all-time high.” As noted, consolidated revenues improved 7.3% to $1.59 billion from $1.49 billion a year ago on strength from all major coalitions, including double-digit sales growth from the Outdoor & Action and Contemporary Brands segments.


Earnings attributable to VFC for the quarter improved by 46.7% to $110.8 million, or $1.00 per diluted share, from earnings of $75.5 million, or 68 cents per diluted share, in the year-ago period. Original earnings analysts’ estimates were, on average, 77 cents per diluted share on revenue of $1.56 billion.


Second quarter gross margins reached “record levels,” surging 320 basis points to 47.1% of total sales.


Management attributed the improvement to lower product costs, continued expansion and improved margins at retail, along with “generally clean” inventories across all businesses. Operating margins rose to 10.6% from 8.1% while marketing spending increased 19% as the company continues to implement a “focused program of investment spending” behind its most profitable brands.


VFC’s Outdoor & Action Sports businesses achieved record revenues, operating income and operating margins in the second quarter, due largely to impressive 28% growth from its Asia markets. By brand, The North Face and Vans recorded 12% and 24% in global growth, respectively.


Management noted that TNF benefitted from a 13% spike in direct-to-consumer sales, mirroring the overall category’s direct growth. For Vans, sales growth was driven by “20% plus” growth domestically and a near doubling of revenues in Asia. Operating income rose by 35% with operating margins increasing by more than two full percentage points to nearly 14% for the quarter, despite “significant increases in marketing and other brand-building investments.”


Also of note, management said The North Face and Vans stores have each achieved double-digit comp store growth for the year to date period, adding that fall bookings are up about 25% for each.


Regarding concerns about market trends in Europe, management said VFC has been “steadily increasing” investments behind TNF and Vans and is “very encouraged by the results.”


Overall International revenues for the quarter improved 6% on a constant currency basis and were driven by “strong growth” from the Outdoor & Action Sports and Contemporary Brands businesses. As noted, International sales continued to be driven primarily by explosive growth in the Asia markets (+26% overall) – particularly for the Vans, 7 For All Mankind and The North Face brands.


The company hopes to increase its store count in China by 40% before the end of fiscal 2010. Management said VFC is also making “very good progress” in India, where sales grew by more than 50% in constant dollars.


Direct-to-consumer sales increased 7%, driven largely by new store openings during the quarter, while The North Face, Vans, 7 For All Mankind, and lucy brands achieved double-digit sales growth for the period. VFC opened a total of 25 stores during the quarter, bringing the number of owned-retail stores to 768 at quarter-end.


Regarding guidance, management now expects revenues to increase 4% to 5% for FY2010, up from previous guidance of an increase of 3% to 4%. Management said the new guidance includes a negative 1% impact from foreign currency translation due to the decline in value of the euro since April. On a constant currency basis, revenues are expected to improve 5% to 6%. Management also confirmed it was raising its EPS guidance to $6.10 per share versus previous guidance of $5.90 per share. Gross margins in the second half are expected to be “above prior year levels” while and increase in SG&A “will reflect the timing of higher investment spending….” For the full year, gross margins a expected to “slightly exceed” 46% while operating margins are also expected to “improve substantially.”