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V.F. Corp (VFC) Tops Q1 Earnings & Sales, Keeps 2016 View (Revised)

V.F. Corporation VFC started 2016 with a bang, posting better-than-expected first-quarter results, after posting negative surprises for two straight quarters.

The company’s quarterly earnings came in at 61 cents a share, beating the Zacks Consensus Estimate by a couple of cents. However, earnings declined 9% year over year on account of the lingering foreign currency headwinds. On a currency neutral basis, the bottom line remained flat year over year.
 

Total revenue of $2,839.3 million was flat year over year, but surpassed the Zacks Consensus Estimate of $2,831 million. On a currency neutral basis, revenues jumped 2%, fuelled by strong sales at the company’s Outdoor & Action Sports and Jeanswear segments, along with impressive direct-to-consumer and international business performance.

The company’s gross margin contracted 80 basis points (bps) to 48.2% as foreign currency headwinds and inventory management efforts offset benefits from the ongoing mix shift to higher-margin businesses, improved pricing and reduced product costs.

Operating income tanked 15% to $336 million, whereas operating margin shrunk by 220 bps to 11.8%. On an adjusted basis, operating margin contracted 70 bps, bearing a 90 bps impact from currency headwinds excluding one-time items.

Segment Details

Revenues at Outdoor & Action Sports jumped 2% to $1,644.4 million (up 4% on a currency neutral basis). The upside was attributable to 6% and 2% respective growth in the North Face and Timberland brands, partly compensated by a 1% dip in Vans revenue.

Jeanswear revenues of $710.6 million grew 2% year over year (up 4% on a currency neutral basis), backed by a 2% jump in Wrangler and 1% in the Lee brand.

Imagewear revenues dropped 5% to $269.1 million (down 4% on a currency neutral basis), with Licensed Sports Group operations remaining flat along with high single-digit decline in the workwear business.

Revenues at Sportswear plunged 13% to $118.4 million, owing to a 14% and 8% sharp fall in Nautica and Kipling brand revenues, respectively.

Contemporary Brands’ revenues slumped 15% to $74.5 million.

The company’s International revenues inched up 1% year over year and rose 4% on a currency neutral basis. On a reported basis, international revenues accounted for 41% of the company’s total revenue, compared with 40% in the year-ago period.

Revenues in Europe increased 2% on a currency neutral basis (up 1% on a reported basis) and revenues in the Asia-Pacific region improved 6% on a currency neutral basis (up 2% on a reported basis). Revenues in the Americas (non-U.S.) region advanced 12% on a currency neutral basis (down 1% on a reported basis).

Direct-to-Consumer revenues jumped 7% year over year (up 8% on a currency neutral basis). As of the end of the first quarter, V.F. Corp. owned 1,541 retail outlets. Overall, direct-to-consumer revenues contributed 26% to V.F. Corp.’s first-quarter revenues, compared to 24% in the same period last year.

Financial Details

V.F. Corp. ended the quarter with cash and equivalents of $585.8 million, long-term debt of $1,401.2 million, and shareholders’ equity of $4,893.9 million. During the quarter, the company used nearly $145.6 million worth of cash flow from operations.

Further, the company repurchased 11.3 million shares worth $714 million during the first quarter, following which it had 19 million shares remaining under its authorization.

Concurrent with its earnings release, V.F. Corp. announced a quarterly cash dividend of 37 cents per share, payable on Jun 20, 2016, to shareholders on record as of Jun 10.

Outlook

Following its solid first-quarter results, the company reaffirmed its 2016 outlook. Management expects 2016 revenues to grow at a mid single-digit rate. This includes the impact of currency headwinds to the extent of about one percentage point.

V.F. Corp. anticipates gross margin expansion of 50 bps to 48.8%, including negative currency impact of roughly 70 bps. Thus, the company envisions 2016 earnings per share to increase 11% on a currency neutral basis and 5% on a reported basis.

The company expects cash flow from operations to approach about $1.3 billion in 2016.  

For the first half of 2016, management anticipates revenue to remain flat year over year (up at a low single-digit rate on a currency neutral basis). Earnings for the first half of the year are expected to drop at a low double-digit rate (fall at a low-single digit rate on a currency neutral basis).

Zacks Rank

V.F. Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Coach, Inc. COH and Columbia Sportswear Company COLM, each with a Zacks Rank #2 (Buy). Another well-ranked stock in the related industry is Abercrombie & Fitch Co. ANF, also with a Zacks Rank #2.

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(We are reissuing this article to correct a mistake. The original article, issued earlier, should no longer be relied upon.)


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