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VF Corp Q3 revenue declines, lowers FY earnings forecast

By Prachi Singh

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Management

VF Corporation third quarter revenue was down 1 percent to 3.5 billion dollars. Earnings per share was up 13 percent to 1.20 dollars and excluding the impact of foreign currency, third quarter earnings per share was up 16 percent.

“We continue to operate in an uneven, global economic environment including especially sluggish retail conditions in the Americas, our largest market,” said Eric Wiseman, VF Chairman and Chief Executive Officer, adding, “We remain sharply focused on operational improvements and taking advantage of this environment to accelerate strategies to create sustainable, long-term growth opportunities for our brands.”

Third quarter financial review

Gross margin was up 70 basis points to 48.4 percent on a reported basis. Changes in foreign currency negatively impacted reported gross margin by 60 basis points in the quarter. Operating income on a reported basis was down 1 percent to 635 million dollars. Operating margin on a reported basis increased 10 basis points to 18.2 percent.

On August 26, 2016, the company completed the sale of its Contemporary Brands businesses, which included the 7 For All Mankind, Splendid and Ella Moss brands, to Delta Galil Industries. The company’s net loss from discontinued operations was about 5 million dollars in the third quarter of 2016, which includes both the final adjustment to the loss on the sale of the Contemporary Brands businesses and the operating results for the businesses during the quarter, net of tax.

Third quarter revenue for Outdoor & Action Sports was up 2 percent to 2.3 billion dollars. Revenue for The North Face brand was down 1 percent (flat currency neutral) in the quarter including a mid-single-digit rate decline in the Americas; a more than 20 percent increase in Europe; and, a mid-single-digit percentage rate decline in Asia-Pacific (down low single-digit currency neutral). Vans brand revenue was up 7 percent (up 8 percent currency neutral) driven by a high single-digit percentage rate increase in the Americas business (up 10 percent currency neutral); a low single-digit rate decline in Europe; and more than 20 percent growth in Asia-Pacific.

Timberland brand revenue was in line with last year’s third quarter (down 1 percent currency neutral) including a mid-single-digit percentage rate decrease in the Americas region; a mid-single-digit percentage rate increase in Europe (up low single-digit currency neutral); and, a low single-digit rate decline in Asia-Pacific.

Jeanswear third quarter revenue declined 6 percent (down 4 percent currency neutral) to 701 million dollars, which the company said was due to unseasonably warm weather in September, softer consumer demand and shifts in the delivery of orders. Wrangler brand revenue was down 6 percent (down 4 percent currency neutral) with a high single-digit percentage rate decline in the Americas business (down mid-single-digit currency neutral); a mid-single-digit percentage rate increase in Europe; and, a high single-digit increase in the Asia-Pacific region (up low double-digit currency neutral).

Revenue for the Lee brand was down 6 percent (down 4 percent currency neutral) including a high single-digit percentage rate decline in the Americas region; a mid-single-digit percentage rate increase in Europe; and, a high single-digit percentage rate decline in the Asia-Pacific region (down low single-digit currency neutral).

Imagewear revenue declined 3 percent to 282 million dollars (down 4 percent currency neutral) with a low single-digit percentage rate increase in the licensed sports group business and a high single-digit decline in the workwear business, which VF said, continues to be impacted by challenges in the oil and gas exploration sector and employment trends in industrial manufacturing.

Sportswear revenue declined 13 percent to 141 million dollars including a 15 percent decrease in Nautica brand revenue and a 6 percent decline in the Kipling brand’s North American business compared with the same period last year. These results, according to VF, reflect ongoing challenges in the US department store and outlet channels, and general category demand. Additionally, the strategic decision to license the women’s sleepwear and men’s underwear businesses negatively impacted Nautica brand revenue by about 8 percentage points in the quarter.

International business segment review

International revenue was up 5 percent (up 6 percent currency neutral). Revenue in Europe was up 7 percent (up 6 percent currency neutral) and up 2 percent (up 4 percent currency neutral) in the Asia-Pacific region. Revenue in the Americas (non-US) region was up 3 percent (up 9 percent currency neutral). The international business represented 41 percent of total VF third quarter sales, compared with 38 percent in last year’s same period.

Direct-to-consumer revenue was up 6 percent driven by a low double-digit percentage rate increase in the Outdoor & Action Sports business offset by a low-teen decline in Sportswear. The company’s e-Commerce business continued its strong momentum with 18 percent revenue growth. There were 1,475 VF-owned retail stores at the end of the quarter compared with 1,363 for last year’s same period. Direct-to-consumer revenue reached 23 percent of total third quarter revenue compared with 21 percent in last year’s same period.

VF lowers 2016 earnings outlook

Revealing adjusted outlook for 2016, VF said, revenue, on a currency neutral basis, is expected to increase 2 percent to about 12.2 billion dollars compared to the previous estimate of 3 to 4 percent growth. Revenue for the Outdoor & Action Sports coalition is now expected to increase at a low single-digit percentage rate compared with previous expectation of mid-single-digit growth due primarily to proactive inventory reductions by both The North Face and Timberland brands related to fourth quarter wholesale orders.

Revenue for the Jeanswear coalition is now expected to increase at a low single-digit percentage rate compared with previous expectation of mid-single-digit growth. Direct-to-Consumer revenue is now expected to increase at a high single-digit percentage rate compared with previous expectation of low double-digit growth.

Gross margin is expected to reach 48.6 percent, which includes about 70 basis points of headwind from changes in foreign currency. Operating margin is now expected to reach 14.3 percent, including about 60 basis points of negative impact from changes in foreign currency. This is 20 basis points lower than the previous 14.5 percent estimate. Reported earnings per share is expected to increase 3 percent to 3.13 dollars (up 7 percent currency neutral) compared with previous expectation of a 5 percent increase to 3.20 dollars (up 11 percent currency neutral).

On October 20, VF’s Board of Directors declared a quarterly dividend of 0.42 dollar per share, reflecting a 14 percent increase over the previous quarter’s dividend.

Picture:Timberland

VF Corporation