VF Corp revenues flat in Q1, reaffirms outlook

VF Corporation revenues were flat for its first quarter ended April 2, 2016. Revenue was in line with last year at 2.8 billion dollars, up 2 percent currency neutral driven by strength in outdoor & action sports and jeanswear coalitions and our direct-to-consumer and international businesses.

“Our first quarter results demonstrate the ability of our diversified business model to perform as expected in an inconsistent environment,” said Eric Wiseman, VF Chairman and Chief Executive Officer, adding, “By leveraging our strengths – driving innovation into the marketplace, connecting with consumers and operating with financial discipline – we are on track to deliver results consistent with our 2016 outlook, while also delivering on our commitment to shareholders.”

First quarter result highlights

Gross margin was 48.2 percent on a reported basis, down 80 basis points compared with the same quarter last year. Operating income on a reported basis was down 15 percent to 336 million dollars compared with the same period of 2015. Operating margin on a reported basis declined 220 basis points to 11.8 percent. Earnings per share were 0.61 dollar per share compared with 0.67 dollar per share during the same period last year. Excluding the negative impact of foreign currency, first quarter earnings per share was flat.

First quarter revenue for outdoor & action sports was up 2 percent or up 4 percent currency neutral to 1.6 billion dollars. Revenue for The North Face brand was up 6 percent or 8 percent currency neutral driven by a low single-digit percentage rate increase in the Americas; a high-teen percentage rate increase in Europe; and, a mid-single-digit percentage rate increase in Asia-Pacific and up high single-digit currency neutral.

Vans brand revenue was down 1 percent and up 2 percent currency neutral including a mid-single-digit increase in the Americas business or up high single-digit currency neutral; a high single-digit increase in Asia-Pacific or up low double-digit currency neutral; and a mid-teen percentage rate decrease in Europe. Timberland brand revenue was up 2 percent or up 3 percent currency neutral in the first quarter including a low single-digit increase or up mid-single-digit currency neutral in the Americas region; a mid-single-digit increase in Europe; and a mid-single-digit decline in Asia-Pacific or down low single-digit currency neutral.

Outdoor & action sports and jeanswear review

First quarter operating income for outdoor & action sports declined 13 percent to 228 million dollars or flat currency neutral. Jeanswear revenue was up 2 percent or up 4 percent currency neutral to 711 million dollars. First quarter revenue for the Wrangler was up 2 percent or up 4 percent currency neutral with low single-digit growth in the Americas business or up mid-single-digit currency neutral; a mid-single-digit decline in Europe or down low single-digit currency neutral; and a low single-digit decline or up mid-single-digit currency neutral in the Asia-Pacific region.

Revenue for the Lee brand was up 1 percent or up 4 percent currency neutral including low single-digit growth in the Americas region or up mid-single-digit currency neutral; mid-single-digit growth in Europe or up high single-digit currency neutral; and a low single-digit decline or up mid-single-digit currency neutral in the Asia-Pacific region.

Operating income for jeanswear was up 4 percent to 137 million dollars, with a 40 basis point increase in operating margin to 19.3 percent. Imagewear revenue was down 5 percent to 269 million dollars or down 4 percent currency neutral with the licensed sports group business remaining flat and a high single-digit decline in the workwear business. Sportswear revenue declined 13 percent to 118 million dollars including a 14 percent decrease in Nautica brand revenues and an 8 percent decrease in the Kipling brand’s North American business compared with the same period last year.

Contemporary Brands’ first quarter revenue was down 15 percent to 74 million dollars, including a 53 percent decline in operating income.

International segment review of Q1

International revenue in the first quarter was up 1 percent or up 4 percent currency neutral. Revenue in Europe was up 1 percent or 2 percent currency neutral and in the Asia-Pacific region was up 2 percent or 6 percent currency neutral. Revenue in the Americas region was down 1 percent or up 12 percent currency neutral.

Direct-to-consumer revenue was up 7 percent or 8 percent currency neutral in the first quarter driven by low double-digit growth in the outdoor & action sports business, which was offset by a mid-teen percentage rate decline in sportswear and a high single-digit decline in the contemporary brands coalition. There were 1,541 VF-owned retail stores at the end of the quarter. Direct-to-consumer revenue reached 26 percent of total revenue in the first quarter compared with 24 percent in the 2015 period.

VF maintains 2016 outlook

There are no changes to management’s full-year outlook given on February 19, 2016. Revenue is expected to increase at a mid-single-digit percentage rate, including about one percentage point of negative impact from changes in foreign currency. Gross margin is expected to improve by about 50 basis points to 48.8 percent, which includes about 70 basis points of headwind from changes in foreign currency.

Operating margin is expected to reach 14.4 percent, including about 70 basis points from the anticipated negative impact of changes in foreign currency. Earnings per share, on a currency neutral basis, is expected to increase 11 percent or up 5 percent reported compared to an adjusted EPS of 3.08 dollars in 2015.

Revenue in the first half is expected to be flat on a reported basis, up at a low single-digit percentage rate currency neutral. First half earnings per share should be down at a low double-digit percentage rate on a reported basis, down low single-digit currency neutral. The company continues to expect currency neutral revenue growth in the second half of 2016 to increase at a high single-digit percentage rate, with the strongest performance coming in the fourth quarter. It expects second half reported earnings per share to increase at a mid-teen percentage rate, or up at a high-teen percentage rate currency neutral.

VF’s Board of Directors has declared a quarterly dividend of 0.37 dollar per share.

picture:vfc.com