VF Corp. reported total revenues in its outdoor segment, which includes The North Face, Jansport, Vans and Reef, rose 17% with double-digit growth in both its domestic and international businesses. The North Face global brand revenues grew over 40% in the quarter, with comparable increases both domestically and internationally and growth across most product categories.
The North Face's wholesale and retail revenues each rose in the quarter, with retail revenues up nearly 50% driven by strong same store sales gains as well as new store openings. Vans also enjoyed another quarter of exceptional growth, with global revenues up 14% reflecting double-digit increases both domestically and internationally. Vans retail revenues also grew strongly in the quarter, with an increase of about 20%. Napapijri, Kipling, Eastpak and Eagle Creek brands also achieved solid growth in the quarter. VF opened a total of 12 stores during the quarter, with new stores added for its Vans, The North Face and Napapijri brands.
Outdoor operating income in the outdoor coalition rose 11% in the quarter reflecting the strong volume gains. Operating margins declined in the quarter due to the seasonality of its growing owned retail businesses and the impact of investments in such areas as new retail store openings and advertising.
“We expect 15%-plus revenue growth for our Outdoor coalition in the second half of this year, with solid gains anticipated both domestically and internationally,” said Eric Wiseman, president and CEO, in a statement. “We are looking forward to exceptionally strong growth in our owned retail businesses as we benefit from the new store openings of the past year and a continuation of positive same store sales trends. We continue to expect higher operating margins in Outdoor for the full year with solid improvement in the second half driven by the seasonality of our retail businesses, particularly in the fourth quarter.”
Imagewear
VF's Imagewear coalition turned in another solid quarter, with total revenues up 5% in the quarter and growth in both its Image and Activewear businesses.
“Growth in our Image business reflects particular strength in our Protective and Services divisions,” said Wiseman. “Our Activewear business is benefiting from strong sales of licensed sports apparel, particularly in our Major League Baseball business under the Majesticbrand. Imagewear operating income rose in the quarter and margins increased to 12.7% from 11.3%.”
Contemporary Brands
Its Contemporary Brands coalition, which consists of the 7 For All Mankind and lucy brands acquired in 2007, added $88 million to second quarter revenues. Operating income was $14 million with stronger margins than anticipated. The company said it continues to expect coalition revenues to exceed $415 million in 2008, with operating margins above 15%.
“We remain enthusiastic about the near and long-term opportunities for both brands,” said Wiseman. “The performance of our new 7 For All Mankind stores is exceeding our expectations, and we look forward to opening 11 stores this year, including our first New York City-based store in August. The brands core denim, sportswear, international and direct-to-consumer businesses each continue to exhibit strong growth. We are also making solid progress in strengthening the product assortment and store concept for our lucy brand and continue to target 10 new store openings this year. We also are excited about our recent purchase of one-third of the shares of Mo Industries, owner of the Splendid and Ella Moss brands.”
Jeanswear
As anticipated, the revenue performance of its global Jeanswear coalition, which includes its Wrangler, Lee and Riders brands, improved in the second quarter compared with first quarter results. Total Jeanswear revenues declined 1% in the current quarter, with double-digit gains in its international jeans business offset by lower revenues in domestic jeans. International jeans revenues rose 14% due to the benefit of foreign currency translation and reflecting strong growth in Asia and
Jeanswear operating income and margins declined in the quarter.
“During the quarter we took the opportunity to take actions to improve our cost structure, which impacted operating margins in the current quarter by 50 basis points. In addition, last years second quarter operating margin included the gain from the sale of a business, which benefited that quarters operating margin by 110 basis points,” said Wiseman. “In terms of the second half, we are encouraged by the early success in such new programs as Wrangler Comfort Series jeans and Lee Comfort Fit casuals and jeans, which should contribute to more stable revenue comparisons in the second half of the year. We continue to expect Jeanswear to post strong, stable margins in the mid-teens on a full year basis.”
Sportswear
Revenue and income comparisons in its Sportswear coalition, which includes our Nautica and John Varvatos brands as well as the Kipling brand in
As planned, operating income and margins were below prior year levels, reflecting the lower volume. VF anticipates a return to double-digit operating margin levels in the fourth quarter of 2008, reflecting substantial improvements in its owned retail business compared with last years weak performance and reduced losses from its womens sportswear business.
Company-wide results
VF Corp. reported second quarter revenues rose 11% to $1,677.5 million from $1,517.4 million a year ago. Income from continuing operations dipped 1.7% to $104 million from $105.8 million a year ago. Earnings per share reached 94 cents against 93 cents on fewer shares. VF said the current period results included a 7 cents a share benefit from resolutions of certain income tax matters and the impact of 4 cents per share in expenses related to actions designed to improve its cost structure. Prior year results included a 4 cents per share gain from the sale of a business.
“Our focus on controlling costs and inventories clearly benefited our results this quarter. Gross margins increased to 43.8% from 42.9%, reflecting healthy growth in many of our lifestyle brands and expansion in our retail, international and Image businesses. Operating margins were 9.8% in the quarter, higher than previously anticipated as a result of tight cost control, but below prior year levels due to the seasonality of our growing retail business as well as investments in our Outdoor and international Jeanswear businesses and lower Sportswear profitability.
For the first half of 2008, revenues rose 10% to a record $3,523.8 million from $3,191.0 million. Income from continuing operations increased 5% to $253.0 million, compared with $239.9 million in the prior year period. Earnings per share from continuing operations rose 8% to $2.27.
“Our ability to deliver record revenues and earnings per share in the face of exceptionally challenging economic conditions clearly demonstrates the strength and resilience of VFs business model which is based on powerful brands, excellent geographic and retail channel diversity, and consistent execution,” said Wiseman. “We continue to see great momentum in brands such as The North Face, Vans and 7 For All Mankind as well as many of our smaller, emerging brands including Kipling, Napapijri, Eastpak and John Varvatos. We also are very pleased by the consistently strong performance achieved by our Imagewear coalition.”
International and Direct-to-Consumer Expansion
We continue to experience strong top line momentum in our international and direct-to-consumer businesses, both of which are strong contributors to profitability. Our international revenues increased 23% in the quarter and represented 27% of total revenues. For the first half of 2008, international revenues increased 21%. For the year, we expect international revenue growth of approximately 19%.
Retail revenues increased 15% in the quarter and represented 15% of total revenues. Retail revenues of our The North Face, Vans, Kipling, Napapijri, John Varvatos and Lee brands each grew at double-digit rates. Retail revenues in the first half of 2008 have grown by 19%. At the end of the quarter, we had 655 owned retail stores, and we are on track with our plans to open over 90 stores this year. For the year, we anticipate an increase of over 20% in our retail revenues.
Wiseman continued, “Our success in building and expanding our international and owned retail platforms is also proving very beneficial to both our top and bottom lines, particularly in todays environment. We achieved double-digit growth in both our international and retail revenues in the second quarter and expect this momentum to continue during the second half of the year.”
Balance Sheet
“Our balance sheet is in excellent condition and our focus on effective inventory management continues to pay off. Inventories were up 10% from the prior years quarter, with more than half the increase due to the acquisitions made in the second half of 2007. Cash and equivalents were $276 million at the end of the quarter, and we continue to expect cash flow from operations of approximately $700 million in 2008. During the quarter we repurchased .3 million shares, bringing the total number of shares purchased year-to-date to 2.0 million.”
Outlook
“Well-managed companies with strong brands can perform well, even in difficult conditions,” said Wiseman. “VF is delivering excellent results and we are confident as we look to the balance of the year that our momentum will continue. Accordingly, we are raising our full year earnings growth target for 2008 from 10% to 12%, or approximately $6.05 per share. We anticipate revenues for 2008 of $7.9 billion, representing an increase of over 9%.”
“We are looking forward to record third quarter results, and currently anticipate that third quarter revenues and earnings per share will both increase approximately 9%. Given our full year guidance, this indicates stronger earnings per share growth in the fourth quarter, reflecting the continued shift of our revenue mix toward more owned retail, the seasonality of our Outdoor business and a significant improvement in Sportswear profitability.”
