VF Corp.’s Earnings Beat Estimates, Guidance Raised

25 Jul VF Corp.’s Earnings Beat Estimates, Guidance Raised

Posted at 20:05h in FDRA, Home, Latest News by

VF Corp. raised its sales and earnings outlook for the year after reporting first-quarter earnings that topped Wall Street estimates.

First-quarter highlights

  • Revenue from continuing operations increased 6 percent (up 9 percent in constant dollars) to $2.3 billion; excluding acquisitions and divestitures, adjusted revenue increased 9 percent (up 11 percent in constant dollars);
  • Active segment revenue increased 8 percent (up 11 percent in constant dollars) including a 20 percent (23 percent in constant dollars) increase in Vans brand revenue; Outdoor segment revenue increased 7 percent (up 11 percent in constant dollars) including a 9 percent (12 percent in constant dollars) increase in The North Face brand revenue and a 2-percentage point revenue growth contribution from acquisitions;
  • International revenue increased 2 percent (up 8 percent in constant dollars); excluding acquisitions and divestitures and on an adjusted basis, international revenue increased 4 percent (up 10 percent in constant dollars); China revenue increased 21 percent (up 29 percent in constant dollars);
  • Direct-to-Consumer revenue increased 14 percent (up 17 percent in constant dollars); Digital revenue increased 24 percent (up 28 percent in constant dollars);
  • Gross margin from continuing operations increased 140 basis points to 54.4 percent; on an adjusted basis, gross margin increased 120 basis points to 54.4 percent;
  • Earnings per share from continuing operations was $0.24. Adjusted earnings per share from continuing operations increased 61 percent (up 67 percent in constant dollars) to $0.30. Wall Street’s consensus estimate was 29 cents a share.;
  • Full-year fiscal 2020 adjusted revenue from continuing operations now expected to approximate $11.8 billion, reflecting growth of approximately 6 percent (8 percent on a constant dollar basis, excluding acquisitions and divestitures); and,
  • Full-year fiscal 2020 adjusted earnings per share from continuing operations is now expected to be in the range of $3.32 to $3.37, including an additional $20 million, or $0.04 per share, of incremental investment, reflecting growth of 16 percent to 18 percent (18 percent to 20 percent on a constant dollar basis, excluding acquisitions and divestitures).

“Our first quarter represents a new chapter for VF following the spin-off of Kontoor Brands and our relocation to Denver, CO,” said Steve Rendle, chairman, president and chief executive officer. “Our first-quarter results demonstrate the power of VF’s evolved portfolio and our progress along our journey to become a purpose-led, performance-driven, value-creating enterprise anchored in our commitment to being more consumer-minded and retail-centric in everything we do. As a result of our strong results and increased confidence in the full-year, we are raising our fiscal 2020 outlook including an additional $20 million of investments aimed at accelerating growth and value creation in fiscal year 2020 and beyond.”

Discontinued Operations – Kontoor Brands Business

On May 22, 2019, VF completed the spin-off of the company’s Jeans business, which included the Wrangler, Lee and Rock & Republic brands, as well as the VF OutletTM business, into an independent, publicly-traded company under the name Kontoor Brands, Inc. (Kontoor Brands). Accordingly, the company has removed the assets and liabilities of Jean’s business as of the date noted above and included the operating results of this business in discontinued operations for all periods presented.

VF’s after-tax net loss from discontinued operations was $48.0 million in the first quarter of fiscal 2020 which reflects the operating results of Jeans business, including $59.5 million of separation costs related to the spin-off.

Adjusted Amounts—Excluding Icebreaker, Altra and Jeans Spin-Off Transaction and Deal Related Expenses, Costs Related to Office Relocations and Specified Strategic Business Decisions

This release refers to adjusted amounts that exclude transaction and deal-related expenses associated with the acquisitions and integration of the Icebreaker and Altra brands. The release also refers to transaction expenses associated with the completed spin-off of the Jeans business. Total transaction and deal-related expenses were approximately $13 million in the first quarter of fiscal 2020.

This release also refers to adjusted amounts that exclude costs primarily associated with the previously announced relocation of VF’s global headquarters and certain brands to Denver, CO. The release also refers to costs related to strategic business decisions in South America and the operating results of jeanswear wind-down activities in South America following the spin-off of Kontoor Brands. Total costs were approximately $17 million in the first quarter of fiscal 2020.

Combined, the above net charges negatively impacted earnings per share by $0.06 during the first quarter of fiscal 2020. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

First Quarter Fiscal 2020 Income Statement Review

  • Revenue increased 6 percent (up 9 percent in constant dollars) to $2.27 billion, beating analysts’ estimate of $2.24 billion. Adjusted revenue increased 6 percent (up 8 percent in constant dollars) to $2.3 billion. Excluding acquisitions and divestitures, revenue increased 9 percent (up 11 percent in constant dollars), driven by VF’s largest brands, international and direct-to-consumer platforms, as well as strength from the Active and Outdoor segments.
  • Gross margin increased 140 basis points to 54.4 percent, driven by favorable mix and timing of foreign currency transaction hedge gains. On an adjusted basis, gross margin increased 120 basis points to 54.4 percent.
  • Operating income on a reported basis was $133 million. On an adjusted basis, operating income increased 23 percent to $163 million. Operating margin on a reported basis increased 60 basis points to 5.9 percent. Adjusted operating margin increased 100 basis points to 7.2 percent.
  • Earnings per share were $0.24 on a reported basis. On an adjusted basis, earnings per share increased 61 percent (up 67 percent in constant dollars) to $0.30. Wall Street’s consensus estimate was 29 cents a share.

Balance Sheet Highlights

Inventories were up 9 percent compared with the same period last year. In connection with the adoption of the new lease accounting standard, the company has recorded approximately $1.3 billion of operating lease right-of-use assets and $1.4 billion of operating lease liabilities. During the quarter, the company also repaid approximately $585 million of short term borrowings and returned approximately $200 million of cash to shareholders through dividends. The company did not repurchase any shares during the first quarter and has $3.8 billion remaining under its current share repurchase authorization.

Adjusted Full-Year Fiscal 2020 Outlook

VF’s outlook for full-year fiscal 2020 is on an adjusted continuing operations basis unless otherwise noted, and has been updated to include the following:

  • Revenue is now expected to approximate $11.8 billion, reflecting an increase of approximately 6 percent (8 percent on a constant dollar basis excluding the impact of acquisitions and divestitures). This compares to the previous expectation of revenue between $11.7 billion and $11.8 billion. By segment, revenue for Outdoor is now expected to increase approximately 5 percent (6 percent on a constant dollar basis, excluding the impact of acquisitions). This compares to the previous expectation of an increase in revenue of approximately 4 percent to 5 percent (5 percent to 6 percent on a constant dollar basis, excluding the impact of acquisitions); revenue for Active is now expected to increase approximately 7 percent to 8 percent (10 percent to 11 percent on a constant dollar basis, excluding the impact of divestitures). This compares to the previous expectation of an increase in revenue of approximately 6 percent to 7 percent (9 percent to 10 percent on a constant dollar basis, excluding the impact of divestitures); and, revenue for Work is still expected to increase approximately 3 percent to 5 percent (4 percent to 6 percent on a constant dollar basis, excluding the impact of divestitures).
  • International revenue is still expected to increase approximately 4 percent to 6 percent, or approximately 7 percent to 9 percent on a constant dollar basis, excluding the impact of acquisitions and divestitures.
  • Direct-to-Consumer revenue is now expected to increase approximately 10 percent to 12 percent (11 percent to 13 percent on a constant dollar basis), including 25 percent growth in digital. This compares to the previous expectation of an increase in revenue of approximately 9 percent to 11 percent (10 percent to 12 percent on a constant dollar basis).
  • Adjusted gross margin is now expected to be 54.1 percent, which represents an estimated increase of 80 basis points. This compares to the previous expectation of about 54.0 percent.
  • Adjusted operating margin is now expected to be 13.8 percent, which represents an estimated increase of approximately 90 basis points. This compares to the previous expectation of an adjusted operating margin of 13.7 percent.
  • Adjusted earnings per share is now expected to be in the range of $3.32 to $3.37, including an additional $20 million, or $0.04 per share, of incremental investment, reflecting growth of approximately 16 percent to 18 percent (18 percent to 20 percent on a constant dollar basis, excluding acquisitions and divestitures). This compares to the previous expectation of $3.30 to $3.35, reflecting growth of 15 percent to 17 percent (17 percent to 19 percent on a constant dollar basis, excluding the impact of acquisitions and divestitures).
  • Adjusted cash flow from operations is still expected to be at least $1.3 billion.
  • Other full year assumptions include an effective tax rate of approximately 15 percent to 15.5 percent and capital expenditures of approximately $400 million.