VF Corp. reported sales dropped 6 percent in the third quarter ended December 26. Sales for the Vans brand were down 6 percent while sales for The North Face were flat, though the company’s entire outdoor segment fell 5 percent. Earnings came in just ahead of Wall Street’s consensus estimate but were below year-ago levels. VF nonetheless raised its guidance for the year.

“Our third-quarter results were largely ahead of expectations despite the impact of additional COVID-19-related disruption to our business,” said Steve Rendle, VF’s chairman, president and CEO. “Our portfolio remains on track to return to growth in the fiscal fourth quarter, and we are confident in VF’s plans to accelerate growth into fiscal 2022 and to continue advancing our business model transformation. We remain optimistic about the year ahead and look forward to improvements in our geopolitical, macroeconomic and pandemic-related situations.”

Discontinued Operations—Occupational Workwear Business
On January 21, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business comprised primarily of the following brands and businesses: Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small. The business also includes certain Dickies occupational workwear products that have historically been sold through its business-to-business channel.

During the three months ended March 2020, the company determined that its Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. Accordingly, the company reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods presented.

Adjusted Amounts Excluding Transaction and Deal Related Expenses and Costs Related to Specified Strategic Business Decisions
The adjusted amounts in this release exclude transaction and deal-related expenses associated primarily with the acquisition of the Supreme brand. Total transaction and deal-related expenses were approximately $7 million in the third quarter and the first nine months of fiscal 2021.

The adjusted amounts in this release exclude costs related to a transformation initiative for its Asia-Pacific regional operations as well as certain cost optimization activities and other charges indirectly related to the strategic review of the Occupational Workwear business. The adjusted amounts also exclude costs related to strategic business decisions in South America and the operating results of jeanswear wind down activities in South America following the spin-off of Kontoor Brands. Total costs were approximately $39 million in the third quarter of fiscal 2021 and $77 million in the first nine months of fiscal 2021. Adjusted amounts for the first nine months of fiscal 2021 also exclude approximately $42 million of non-cash, non-operating expenses related to the release of certain currency translation amounts associated with the wind-down activities in South America.

Combined, the above items negatively impacted earnings per share by $0.10 during the third quarter of fiscal 2021 and $0.29 during the first nine months of fiscal 2021. All adjusted amounts referenced exclude the effects of these amounts.

COVID-19 Outbreak Update
As the global impact of COVID-19 continues, VF said it remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners, and consumers worldwide. 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, including the temporary closure 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. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. VF is working with its suppliers to minimize disruption. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

In North America, over 95 percent of VF’s owned retail stores were open at the beginning of the third quarter, with all VF-owned retail stores re-opened by mid-October. Since that time additional stores have been re-closed, with approximately 15 percent of stores closed by the end of the quarter. The majority of the closures were Vans stores, predominantly based in California. In addition, other stores are operating with reduced capacity. Stores in North America have begun to re-open since the end of the quarter and currently, less than 10 percent of stores are closed in the region.

In the EMEA region, nearly all of VF’s owned retail stores were open at the beginning of the third quarter. Since that time, additional stores have been re-closed, with approximately 50 percent of stores closed by the end of the quarter. Additional stores in the EMEA region have re-closed since the end of the quarter and currently, over 60 percent of stores are closed.

Nearly all of VF’s owned retail stores in the APAC region, including Mainland China, were open during the quarter and remain open.

VF is continuing to monitor the COVID-19 outbreak 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. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

Third Quarter Fiscal 2021 Income Statement Review

  • Revenue decreased 6 percent, down 8 percent in constant dollars, to $2.97 billion driven by store closures and lower consumer demand as a result of COVID-19 and related government actions and regulations. Sales were in line with Wall Street’s consensus estimate of  $3.00 billion.
  • Gross margin decreased 250 basis points to 54.7 percent, primarily driven by elevated promotional activity to clear excess inventory and the timing of net foreign currency transaction activity. On an adjusted basis, its gross margin decreased 150 basis points to 55.7 percent.
  • Operating income, on a reported basis, was $412 million. On an adjusted basis, operating income was $458 million, down 17.6 percent from $556 million a year ago. Operating margin was 13.9 percent. Adjusted operating margin was 15.4 percent.
  • Earnings per share were 83 cents a share on a reported basis against $1.05 a year ago. On an adjusted basis, earnings per share were 93 cents a share, down from $1.15 a year ago. Wall Street’s consensus estimate had been 90 cents.

Supplemental Information

  • Active segment revenue decreased 9 percent, down 11 percent in constant dollars, including a 6 percent (8 percent in constant dollars) decrease in Vans brand revenue; Outdoor segment revenue decreased 5 percent, down 7 percent in constant dollars, including flat revenue, down 2 percent in constant dollars, in The North Face brand; Work segment revenue increased 8 percent, up 6 percent in constant dollars, including a 9 percent (7 percent in constant dollars) increase in Dickies brand revenue;
  • International revenue was flat, down 4 percent in constant dollars; Europe revenue increased 1 percent, down 4 percent in constant dollars; Greater China revenue increased 18 percent, up 11 percent in constant dollars, including a 22 percent (15 percent in constant dollars) increase in Mainland China;
  • Direct-to-Consumer revenue decreased 2 percent, down 4 percent in constant dollars, including a 53 percent (49 percent in constant dollars) increase in Direct-to-Consumer Digital revenue.

Balance Sheet Highlights
Inventories were down 14 percent compared with the same period last year. During the quarter, VF returned approximately $191 million of cash to shareholders through dividends. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program. VF has $2.8 billion remaining under its current share repurchase authorization.

Full Year Fiscal 2021 Outlook
VF’s full-year outlook assumes no material deterioration to the company’s current business operations as a result of COVID-19, governmental actions and regulations. VF’s full-year fiscal 2021 outlook has been updated and includes the following:

  • Revenue is now expected to be in the range of $9.1 billion to $9.2 billion, reflecting a decrease of 12 percent to 13 percent on an adjusted basis. The updated outlook includes approximately $125 million of revenue from the Supreme brand. This compares to the previous expectation of at least $9.0 billion, reflecting a decrease of approximately 14 percent on an adjusted basis.
  • Adjusted earnings per share are expected to be approximately $1.30, reflecting a decrease of approximately 51 percent. The updated outlook includes approximately $0.05 of adjusted earnings per share from the Supreme brand. This compares to the previous expectation of at least $1.20, reflecting a decrease of approximately 55 percent.
  • Adjusted free cash flow is now expected to be approximately $650 million. This compares to the previous expectation of greater than $600 million.

Dividend Declared
VF’s Board of Directors declared a quarterly dividend of $0.49 per share, payable on March 22, 2021, to shareholders of record on March 10, 2021. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.

Photo courtesy Vans