VF Corp’s Outdoor Brands Help Drive Q3 Growth

VF Corp’s Outdoor Brands Help Drive Q3 Growth

VF Corp. said Timberland, Vans, The North Face, Kipling and Wrangler drove a 7 percent increase in revenues and an 11 percent increase in earnings per share in the third quarter ended Sept. 27, 2014. All per share amounts are presented on a diluted basis.

Highlights for the quarter included:

  • Revenues rose 7 percent to $3.5 billion driven by strong growth in our Outdoor & Action Sports coalition and our international and direct-to-consumer businesses.
  • Gross margin improved 70 basis points to 48.3 percent driven primarily by the continuing shift of our revenue mix toward higher margin businesses.
  • SG&A as a percent of revenues was up 40 basis points to 30.4 percent.
  • Operating income increased 9 percent to $633 million in the third quarter, compared with $580 million in the same period of 2013. Operating margin was 18 percent compared with 17.6 percent in the third quarter of 2013.
  • Earnings per share increased 11 percent to $1.08 per share compared with $0.97 per share during the same period last year.

“Our third quarter results validate our growth strategy and demonstrate our ability to manage our powerful portfolio in ways that ensure we deliver solid results,” said Eric Wiseman, VF Chairman, President and Chief Executive Officer. “Led by another outstanding performance from our Outdoor & Action Sports coalition, we delivered strong growth in revenue and earnings. We are squarely on track to deliver another record year for VF and our shareholders.”

Outdoor & Actions Sports
Revenues for the Outdoor & Action Sports coalition increased 11 percent in the quarter to $2.2 billion with double-digit growth in the Americas, European and Asia Pacific regions.

Third quarter revenues for The North Face brand rose 9 percent globally. The North Face brand’s revenues were up at a low double-digit percentage rate in the Americas region, up by a mid single-digit percentage rate in Asia Pacific and up at a low single-digit rate in Europe. Global direct-to-consumer revenues for The North Face brand were up 32 percent.

Vans brand revenues were up 12 percent with continued, strong growth across all regions as well as in the brand’s wholesale and direct-to-consumer businesses. Revenues in the Americas region were up at a high single-digit rate, impacted by a shift in timing of shipments; fourth quarter revenues are expected to grow at a high-teen percentage rate. In Europe, Vans brand revenues were up at a mid-teen percentage rate in the quarter, and by nearly 40 percent in the Asia Pacific region. Global direct-to-consumer revenues for the Vans brand were up 18 percent in the quarter.

Revenues for the Timberland brand were up 15 percent in the third quarter. In the Americas region, revenues were up 22 percent including more than 30 percent growth in its wholesale business. In Europe, Timberland brand revenues were up at a mid-teen percentage rate and in Asia Pacific, revenues increased at a low single-digit rate. Globally, the Timberland brand achieved 18 percent growth in wholesale revenues and a 6 percent increase in its direct-to-consumer business in the quarter.

In line with our expectations for sequential quarterly improvement, Jeanswear third quarter revenues were up slightly to $750 million. In constant currency, Jeanswear revenues increased 2 percent in the quarter. Coalition revenues in the Americas region were down at a low single-digit percentage rate due to ongoing challenges in the U.S. mid-tier/department store channel and unfavorable consumer trends in women’s denim, which, similar to the second quarter, primarily impacted the Lee brand. Jeanswear revenues were down slightly in Europe and up more than 30 percent in the Asia Pacific region.

Third quarter revenues for the Wrangler brand were up 3 percent driven by a low single-digit increase in the Americas region, a mid single-digit percentage rate decline in European revenues and more than 30 percent growth in the Asia Pacific region. Third quarter revenues for the Lee brand were down 1 percent driven by a low double-digit percentage revenue decline in the Americas region, partially offset by 30 percent growth in Asia Pacific and a low single-digit increase in European sales.

We continue to expect fourth quarter revenue comparisons for the Jeanswear coalition to be the strongest of the year with a mid-to-high single-digit percentage increase.


Imagewear revenues were up 3 percent in the quarter to $293 million driven by a 10 percent increase in its Image business and a mid single-digit percentage decrease in its Licensed Sports Group business.
Third quarter Sportswear revenues were up 5 percent to $163 million. Nautica brand revenues grew 2 percent and the Kipling brand’s U.S. business was up more than 22 percent. Globally, the Kipling brand grew 20 percent.

Contemporary Brands
Contemporary Brands coalition revenues were down 5 percent, to $99 million, reflecting continuing challenging consumer trends in women’s contemporary apparel and premium denim.

International Review
International revenues in the third quarter grew 9 percent, or 10 percent excluding the impact of foreign currency. Revenues in Europe increased 8 percent and in the Asia Pacific region were up 18 percent, including 19 percent growth in China. Reported revenues in the Americas (non-U.S.) region were up 4 percent (up 10 percent in constant currency). International revenues were 41 percent of total VF third quarter sales in 2014 compared with 40 percent in the same period of 2013.

Direct-to-Consumer Review

Direct-to-consumer revenues grew 16 percent in the third quarter with double-digit increases in all regions of the world and growth in every VF brand with a retail format. Forty-nine stores were opened during the quarter bringing the total number of VF owned retail stores to 1,333. Direct-to-consumer revenues reached 22 percent of total revenues in the third quarter compared with 19 percent in the 2013 period. As previously discussed, effective in 2014, VF now includes revenues from its concession locations in its direct-to-consumer business; on a comparable basis, direct-to-consumer revenues in the third quarter of 2013 would have been 20 percent of total VF revenue. References to direct-to-consumer and wholesale revenue growth rates reflect the change in reporting of concessions in all periods.

Balance Sheet Review
Quarter end inventories were up 4 percent compared to the same period in 2013 reflecting VF’s rigorous operational discipline. For the full year, VF continues to anticipate cash generation from operations to exceed $1.65 billion.

2014 Outlook

Key points related to VF’s full year 2014 outlook include:

  • Revenues are expected to reach $12.3 billion, growing 8 percent over 2013. Outdoor & Action Sports revenues are expected to increase by 13 percent. The Timberland brand’s annual growth outlook has been strengthened to 13 percent versus the previously anticipated 12 percent expectation.
  • Gross margin is expected to expand to approximately 49 percent, and operating margin should reach 15 percent.
  • Earnings per share are now expected to reach $3.08 per share, an increase of $0.02 over the previous outlook, representing a 14 percent increase over 2013 and slightly ahead of the company’s long-term financial target. This new $3.08 outlook includes an estimated $0.02 negative impact due to currency fluctuations since our prior outlook.

Dividend Declared
On Oct. 16, 2014, VF’s Board of Directors declared a quarterly dividend of $0.32 per share, reflecting a 22 percent increase over the previous quarter’s dividend. This dividend will be payable on Dec. 19, 2014 to shareholders of record at the close of business on Dec. 9, 2014.


Condensed Consolidated Statements of Income


(In thousands, except per share amounts)

        Three Months Ended September   %     Nine Months Ended September   %
        2014     2013     Change     2014     2013     Change
Net sales       $ 3,486,998       $ 3,266,681       7 %     $ 8,610,521       $ 8,043,638       7 %
Royalty income         33,449         30,588       9 %       92,780         85,911       8 %
Total revenues         3,520,447         3,297,269       7 %       8,703,301         8,129,549       7 %

Costs and operating expenses

Cost of goods sold         1,818,655         1,728,144       5 %       4,464,565         4,226,779       6 %
Selling, general and administrative expenses         1,068,710         989,422       8 %       2,982,656         2,764,005       8 %
          2,887,365         2,717,566       6 %       7,447,221         6,990,784       7 %
Operating income         633,082         579,703       9 %       1,256,080         1,138,765       10 %
Interest, net         (20,703 )       (19,987 )     (4 %)       (59,828 )       (61,224 )     2 %
Other income (expense), net         (1,609 )       (1,250 )     (29 %)       (4,209 )       (1,723 )     (144 %)
Income before income taxes         610,770         558,466       9 %       1,192,043         1,075,818       11 %
Income taxes         140,241         124,705       12 %       266,639         233,366       14 %
Net income       $ 470,529       $ 433,761       8 %     $ 925,404       $ 842,452       10 %
Earnings per common share                                      
Basic       $ 1.09       $ 0.99       10 %     $ 2.14       $ 1.92       11 %
Diluted       $ 1.08       $ 0.97       11 %     $ 2.10       $ 1.89       11 %