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V.F. Corp. (VFC) Q3 Earnings Up Y/Y, EPS Guidance Raised

V.F. Corporation (VFC) posted mixed results for third-quarter 2014, wherein its top and bottom line results marked year-over-year improvement but fell slightly short of expectations. The year-over-year improvement was driven by solid performance of its Vans, The Timberland, The North Face, Kipling and Wrangler brands as well as strength in its Outdoor & Action Sports coalition.

V.F. Corp.'s earnings of $1.08 a share was up 11% year over year but a penny short of the Zacks Consensus Estimate of $1.09. Total revenue of $3,520.4 million grew 7% year over year but missed the Zacks Consensus Estimate of $3,571 million.

V F Corporation - Earnings Surprise | FindTheBest

Quarter in Detail

The company’s gross margin in the quarter expanded 70 basis points (bps) to 48.3% gaining from the ongoing mix shift to higher-margin businesses.

Operating income rose 9% to $633.1 million, on a year-over-year basis. Moreover, operating margin expanded 40 bps to 18% during the quarter as higher gross margin was offset by increased selling, general & administrative expenses as a percentage of revenues.

Segment Details

Revenue at Outdoor & Action Sports rose 11% from the year-ago quarter to $2,810.9 million, driven by double-digit growth witnessed in the Americas, European and Asia Pacific regions.

The increased revenues are attributable to a respective 9%, 12% and 15% increase in sales in North Face, Vans and Timberland brands. Segment operating income increased 13% year over year to $475.4 million, while operating margin expanded 40 bps to 21.8%.

Jeanswear revenues of $750.4 million were slightly up compared with $747.2 million in the prior-year quarter. During the quarter, the segment’s performance was impacted by low single-digit percentage decline in the Americas region and a slight decline in Europe, more than offset by a rise of over 30% in Asia Pacific.

Moreover, segment revenue gained from a 3% rise in Wrangler brand revenue, offset by a 1% decline at the Lee brand. Segment operating income dipped 1% to $157.0 million, while operating margin contracted 30 bps to 20.9% in the quarter.

Imagewear revenues increased 3% year over year to $292.5 million on the back of strong Image business, offset by decline in Licensed Sports Group revenues. Operating income increased 5% to $42.9 million, while operating margin at the segment expanded 40 bps to 14.7%.

Revenues at Sportswear increased 5% to $163.4 million, owing to strong performance at the Kipling brand that delivered more than 22% increase in the U.S. and 20% growth worldwide. On the other hand, revenues of the Nautica brand improved 2% in the quarter. However, segment operating income decreased 4% year over year to $23.0 million. Operating margin came in at 14.1%, contracting 140 bps year over year.

Contemporary Brands’ revenues dipped 5% to $99.4 million due to the challenges faced by the women’s contemporary apparel and premium denim categories. Operating income in the quarter declined 49% to $4.9 million, while operating margin contracted 410 bps to 4.9%.

The company’s International revenues escalated 9% year over year. The growth was largely driven by strong performances at almost all brands in Europe (up 8%), Asia Pacific (up 18%) and Americas (Non-U.S.) (up 4%). Notably, within the Asia Pacific region the company witnessed strong growth in China, where revenues were up 19%. International revenues represented 41% of V.F. Corp.’s total revenue in the third quarter compared with 40% in the year-ago quarter.

Direct-to-Consumer revenues advanced 16% year over year, primarily driven by double-digit revenue growth in every region across the globe and upside in almost every brand. During the quarter, the company added 49 new stores, including various brands, bringing the store count to 1,333. Overall, direct-to-consumer revenues contributed 22% to V.F. Corp.’s third-quarter revenues, higher than the 19% contribution in the year-ago quarter.

Financial Details

V.F. Corp. ended the quarter with cash and cash equivalents of $496.5 million and long-term debt of $1,424.3 million. The company’s shareholders’ equity came in at $5,862.4 million as of the end of Sep 2014.

Moreover, during the first nine months of 2014, the company generated cash flow from operations of $366.8 million and had capital expenditures of about $171.6 million. Inventories improved nearly 4% year over year, indicating the company’s emphasis on operational efficacy.

Dividend

On Oct 16, 2014, management announced a raised quarterly dividend of 32 cents per share, which reflects a 22% increase from the previous quarter’s dividend. This dividend is payable on Dec 19, 2014 to stockholders of record as of Dec 9, 2014.

Outlook

The company seems confident about 2014, mainly on the back of its strong brand portfolio. For 2014, it continues to expect an 8% increase in revenues, considering a 13% revenue growth in its Outdoor & Action Sports coalition.

For the fourth quarter, the company expects mid-to-high single-digit percentage revenue, marking the strongest quarterly growth in fiscal 2014.

Further, the company retained its gross margin and operating margin forecasts for 2014 at 49% and 15%, respectively.

The company now projects adjusted earnings for 2014 to rise 14% year over year to $3.08 per share. This compares with the previous forecast of $3.06 per share, up 13% year over year.

This North Carolina-based retailer currently holds a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other stocks that warrant a look in the textile-apparel industry include Hanesbrands Inc. (HBI), Cherokee Inc. (CHKE) and Lululemon Athletica Inc. (LULU). While Hanesbrands and Cherokee carry a Zacks Rank #1 (Strong Buy), Lululemon has a Zacks Rank #2.

Read the Full Research Report on VFC
Read the Full Research Report on LULU
Read the Full Research Report on HBI
Read the Full Research Report on CHKE


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