Parent company VF Corporation lists second quarter financials
Surfersvillage Global Surf News, 27 July, 2015 - VF Corporation reported financial results for its second quarter ended July 4, 2015. All per share amounts are presented on a diluted basis. T
“Our second quarter was another strong illustration of the ability of our global, diverse and powerful brands and platforms to deliver consistent, profitable growth,” said Eric Wiseman, VF Chairman and Chief Executive Officer.
“Our strategy for continued growth and fueling our momentum is working: Keep the consumer at the center of everything we do; deliver innovative and relevant product; and focus our execution and discipline to maximize long-term growth opportunities.”
Second Quarter 2015 Highlights
Revenue rose 10 percent on a currency neutral basis driven by growth in our Outdoor & Action Sports and Jeanswear coalitions, and our international and direct-to-consumer businesses. On a reported basis, revenue increased 5 percent over the 2014 quarter.
Gross margin was 48.3 percent on a reported basis, down 10 basis points compared with the same quarter last year, but in line with our expectations. Continued benefit from the shift of our revenue mix toward higher margin businesses was more than offset by the impact of foreign currency.
Operating income on a reported basis was up 1 percent to $223 million compared with the same period in 2014. Operating margin on a reported basis declined 30 basis points to 8.9 percent due to the negative impact from changes in foreign currency rates.
Earnings per share was up 22 percent on a currency neutral basis and up 11 percent on a reported basis compared with last year’s same period. The quarter benefitted $0.02 from a lower tax rate relative to 2014, which included discrete items related to the settlement of prior years’ tax audits.
Inventories were up 8 percent compared to the 2014 quarter, in line with expectations.
Second quarter revenue for the Outdoor & Action Sports coalition was up 16 percent on a currency neutral basis (up 9 percent reported to $1.4 billion) driven by a similar growth rate in both its wholesale and direct-to-consumer businesses.
Currency neutral revenue for the Vans® brand in the second quarter was up 23 percent (up 17 percent reported) including a 25 percent increase (up 21 percent reported) in direct-to-consumer sales and 22 percent growth (up 15 percent reported) in wholesale sales. Revenue in the Americas region was up greater than 20 percent, up more than 30 percent in the Asia Pacific region, and up at a mid-teen percentage rate (down mid single-digit reported) in Europe. In 2015, the company continues to expect a mid-teen currency neutral percentage rate increase in revenue for the Vans®brand.
Second quarter operating income for Outdoor & Action Sports was up 3 percent to $135 million (as reported) and operating margin declined 50 basis points to 9.7 percent (as reported), due to changes in foreign currency rates.
Jeanswear second quarter currency neutral revenue was up 4 percent (flat reported, at $608 million). Revenue for the Americas region improved at a mid single-digit percentage rate (low single-digit reported). In Europe, revenue was flat (down high-teen reported) and in the Asia Pacific region, revenue increased at a low double-digit percentage rate.
Currency neutral revenue for the Wrangler® brand in the second quarter was up 7 percent (up 4 percent reported) driven by strength in the Americas region, which realized high single-digit growth (up mid single-digit reported). Revenue in Europe was down at a mid single-digit rate (down more than 20 percent reported) due to ongoing weakness in Eastern Europe and up more than 20 percent (high-teen reported) in the Asia Pacific region.
Global revenue, on a currency neutral basis, for the Lee® brand in the second quarter was up 1 percent (down 4 percent reported) including a low double-digit percentage rate increase (up high single-digit reported) in Asia Pacific and a mid single-digit increase (down mid-teen reported) in Europe. Revenue in the Americas region was down at a low single-digit rate (down mid single-digit reported).
Operating income for Jeanswear in the second quarter was up 4% to $105 million (as reported) and operating margin increased 70 basis points to 17.2 percent (as reported).
Imagewear revenue was flat at $249 million in the second quarter, driven by a mid single-digit increase in the Licensed Sports Group business offset by a low single-digit percentage rate decline (down mid-single reported) in the workwear business due to slower oil production demand. Second quarter operating income for Imagewear was flat at $35 million (as reported), with a 10 basis point increase in operating margin to 14.2 percent (as reported).
Sportswear second quarter revenue increased 1 percent to $142 million. Nautica® brand revenue was down at a low single-digit percentage rate and the Kipling® brand’s revenue in the U.S. was up 20 percent compared with the same period last year. In the second quarter, operating income was up 41 percent to $14 million while operating margin improved 290 basis to 10.2 percent (as reported).
Contemporary Brands coalition second quarter currency neutral revenue was down 5 percent (down 10 percent reported to $87 million) as demand in the category remains challenged.
International revenue, on a currency neutral basis, was up 13 percent (down 1 percent reported) in the second quarter. Revenue in Europe was up 11 percent (down 8 percent reported) and up 17 percent (up 14 percent reported) in the Asia Pacific region. Revenue in the Americas (non-U.S.) region was up 11 percent (down 1 percent reported). On a reported basis, the international business was 34 percent of total VF second quarter revenue compared with 36 percent in the same period of 2014.
Direct-to-consumer revenue, on a currency neutral basis, grew 13 percent (up 7 percent reported) in the second quarter with positive comparable sales growth in all regions and particular strength in Asia Pacific. Forty-nine stores were opened during the second quarter bringing the total number of VF-owned retail stores around the world to 1,438. On a reported basis, direct-to-consumer revenue reached 26 percent of total revenue in the second quarter, the same percentage as last year’s second quarter.
Full year revenue expectations are unchanged, with an 8 percent increase on a currency neutral basis (up 3 percent reported). Revenue for the Outdoor & Action Sports coalition is expected to increase at a low double-digit currency neutral percentage rate (up mid single-digit reported). Jeanswear is now expected to grow at a mid single-digit currency neutral rate (up low single-digit reported) compared with the previous expectation of a low single-digit increase. Imagewear and Sportswear coalition revenue is expected to grow at a mid single-digit currency neutral percentage rate. Contemporary Brands revenue is now expected to be down at a mid single-digit currency neutral rate (down at a high single-digit reported rate) versus the previous expectation of nearly flat currency neutral revenue (down at a mid single-digit reported rate).
There is no change to the company’s expectation that currency neutral gross marginshould improve by 70 basis points to reach about 49.5 percent for the full year. Based on expected changes in foreign currency for the balance of the year, reported gross margin is now expected to be closer to 49 percent compared with the previous expectation of 49.2 percent.
Earnings per share, on a currency neutral basis, is now expected to increase 15 percent compared to an adjusted EPS of $3.08 in 2014. This is an increase from the previous expectation of 14 percent per share growth provided on May 1, 2015. Earnings per share, on a reported basis, is now anticipated to increase by 5 percent to $3.22 compared to adjusted earnings per share of $3.08 in 2014. This is an increase from the previous expectation of 4 percent per share growth to $3.20 given on May 1, 2015. As a reminder, 2014 adjusted earnings per share excluded the negative impact of a $0.70 noncash impairment charge recorded in the fourth quarter of 2014 to reduce the carrying value of the goodwill and intangible assets related to the 7 For All Mankind®, Ella Moss® and Splendid®brands. On a reported basis, 2014 earnings per share was $2.38.
Third quarter currency neutral and reported revenues are expected to increase at nearly the same rates as those of the second quarter driven by strength from the Outdoor & Action Sports and Jeanswear coalitions, our international operations and continued strength in our direct-to-consumer businesses. Fourth quarter currency neutral revenue should increase at a rate slightly lower than third quarter results due to the tougher comparison against the same period of 2014 which included a 53rd week. The strongest margin and profit comparisons of the year are expected in the fourth quarter, when the direct-to-consumer business makes the most significant contribution of the year, the negative impact of currency lessens and lower product costs are realized.