VF Corp Q3 revenue up 8 percent, updates outlook

VF Corporation for its third quarter ended October 3, 2015 said that revenue increased 8 percent on a currency neutral basis driven by double-digit growth in Outdoor & Action Sports coalition and strength in Jeanswear coalition, and international and direct-to-consumer businesses. On a reported basis, revenue increased 3 percent over the 2014 quarter.

“On a currency neutral basis, our year-to-date revenue is up 9 percent and our earnings per share are up 15 percent – a performance that affirms our ability to leverage our diverse, competitive assets to fuel consistent, long-term growth,” said Eric Wiseman, VF Chairman and Chief Executive Officer.

Other third quarter highlights

Gross margin was 48.9 percent on a currency neutral basis, representing a 60 basis point improvement over the same period last year. Reported gross margin was down 40 basis points to 47.9 percent as benefits from more favorable product costs and continued mix shift to higher margin businesses were offset by foreign currency headwinds in the quarter – especially movements in the euro, Chinese renminbi, British pound sterling, Canadian dollar and Mexican peso.

Currency neutral operating income was up 14 percent, up 2 percent reported to 643 million dollars compared with the same period in 2014. Currency neutral operating margin was 19 percent, a 100 basis point improvement over the same period last year. Reported operating margin declined 20 basis points to 17.8 percent due to the negative impact from changes in foreign currency.

Earnings per share rose 14 percent on a currency neutral basis compared with last year’s same period. On a reported basis, earnings per share were down 1 percent to 1.07.

Coalitions report revenue growth in Q3

Third quarter revenue for the Outdoor & Action Sports coalition was up 13 percent on a currency neutral basis and 5 percent reported to 2.3 billion dollars driven by similar growth rates in both its wholesale and direct-to-consumer businesses.

Currency neutral revenue for The North Face brand rose 11 percent and 6 percent reported. By region, The North Face brand’s revenue was up at a low double-digit percentage rate in the Americas, up at a low single-digit rate or down low-double reported in Europe and up at a high-teen percentage rate or up mid-teen reported in the Asia-Pacific region. For the full year, the company’s expectation for low double-digit currency neutral revenue growth for The North Face brand remains unchanged.

Currency neutral revenue for the Vans brand was up 10 percent or 2 percent reported including a high-teen percentage rate increase or up low-teen reported in direct-to-consumer sales and mid-single-digit growth or down mid-single reported in wholesale sales. Revenue in the Americas region was up at a low double-digit percentage rate or up high-single reported, up at a high-teen rate in the Asia-Pacific region and up low-teen reported, and up at a mid-single-digit percentage rate or down low-teen reported in Europe. In 2015, the company continues to expect a mid-teen currency neutral percentage rate increase in revenue for the Vans brand.

Timberland brand revenue was up 21 percent on a currency neutral basis or up 11 percent reported including more than 25 percent growth or up mid-teen reported in its wholesale business and a low single-digit increase or down mid-single reported in direct-to-consumer sales. In the Americas region, revenue was up more than 40 percent due to a combination of strong performance and lower third quarter revenue in 2014 due to phasing of orders. This growth should normalize to a full-year high-teen percentage rate increase, placing the Timberland brand’s Americas business in line with expectations. In Europe, revenue was up at a high single-digit percentage rate or down high-single reported and in the Asia-Pacific region, revenue in the third quarter was up at a low single-digit percentage rate or down low-single reported.

Jeanswear revenue up 4 percent

Jeanswear’s third quarter currency neutral revenue was up 4 percent or flat reported, at 748 million dollars. Revenue for the Americas region improved at a mid-single-digit percentage rate or up low-single reported. In Europe, revenue increased at a mid-single-digit percentage rate or down mid-teen reported and in the Asia-Pacific region, revenue increased at a high single-digit percentage rate or up low-single reported.

Currency neutral revenue for the Wrangler brand in the third quarter was up 3 percent or down 1 percent reported driven by strength in the Americas region, which realized a low single-digit increase. Revenue in Europe was up at a low single-digit percentage rate and down mid-teen reported and down at a mid-single-digit percentage rate or down low-double reported in the Asia-Pacific region.

Global revenue, on a currency neutral basis, for the Lee brand was up 8 percent or up 2 percent reported including a high single-digit percentage rate increase or up mid-single reported in the Americas region and a high single-digit increase or down low-double reported in Europe. Revenue in the Asia-Pacific region was up at a high single-digit percentage rate or up mid-single reported.

Imagewear’s currency neutral revenue was up 1 percent or flat reported, at 292 million dollars in the third quarter, driven by 10 percent growth or up high-single reported in the Licensed Sports Group business offset by a high single-digit percentage rate decline in the workwear business. Sportswear coalition revenue was down 1 percent to 162 million dollars based on a low single-digit percentage decline in Nautica brand revenue compared with the same period last year. Contemporary Brands’ currency neutral revenue for the coalition was down 13 percent or down 16 percent reported to 83 million dollars.

International segment review

In its largest quarter of the year, currency neutral international revenue was up 9 percent or down 5 percent reported. Revenue in Europe was up 5 percent or down 11 percent reported and up 12 percent or up 7 percent reported in the Asia-Pacific region, driven by strength in China. Revenue in the Americas (non-US) region was up 19 percent or up 1 percent reported. On a reported basis, the international business was 38 percent of total VF third quarter revenue compared with 41 percent in the same period of 2014.

Direct-to-consumer revenue, on a currency neutral basis, grew 8 percent or was up 3 percent reported in the third quarter. Sixty stores were opened during the third quarter bringing the total number of VF-owned retail stores around the world to 1,480. On a reported basis, direct-to-consumer revenue was 22 percent of total revenue in the third quarter, the same percentage as last year’s third quarter.

Outlook for the fiscal year 2015

“2015 is on track to be another solid year for VF, driven by strong performances in our Outdoor & Action Sports and Jeanswear brands and our International and Direct-to-Consumer platforms,” Wiseman continued, adding, “And while we see some softness in certain areas of our business and have elected to true up our full year outlook.”

Revenue, on a currency neutral basis, is expected to be up 7.5 percent or up about 3 percent reported. Due to weakness in the workwear business which has been impacted by slower oil exploration, full year revenue is now expected to be flat compared with the previous outlook of a mid-single-digit percentage rate increase. Sportswear revenue is expected to be up at a low single-digit rate for the full year, compared with the previous outlook of a mid-single-digit percentage rate increase, due to ongoing softness in the direct-to-consumer business.

Due to weakness in both wholesale and direct-to-consumer channels, full year revenue is now expected to be down at a high single-digit currency neutral percentage rate (down low-double reported) compared with the previous expectation of a mid-single-digit currency neutral rate decline or down high-single reported. Direct-to-Consumer revenue is now expected to increase at a low double-digit percentage rate or up high-single reported versus the previous expectation of a mid-teen currency neutral rate increase or up low-double reported.

Due to approximately 0.04 dollar per share of greater than expected negative changes in foreign currency during the third quarter, reported earnings for the full year are now anticipated to increase by approximately 3 percent to3.18 dollars compared to an adjusted EPS of 3.08 dollars in 2014.

On October 20, 2015, the Board of Directors declared a quarterly dividend of 0.37 dollar per share, reflecting a 16 percent increase over the previous quarter’s dividend. This represents the company’s 43rd consecutive year in which the annual dividend has increased.