After releasing VF Corporation’s figures for the second quarter ended on Sept. 30, the group’s management said it felt that the worst of the Covid-19 crisis is over by now, but pointed out that the crisis will be prolonged, that the situation is going to be “volatile,” and that the company will need to be “agile and adaptable” to regain momentum and take advantage of opportunities, including possible acquisitions “at the right time.”
In particular, the management noted, it has become evident that the group’s so-called Emerging Brands, which have more potential than its Core Brands, will require a more agile operating model and different growth strategies than the larger brands.
The digital channel is the most profitable one for the group, and its digital transformation will be a key strategy in the near future. VF’s own e-commerce and sales through wholesale e-tail accounts accounted for nearly 25 percent of the group’s total revenues in the latest quarter, but direct digital sales were up by 42 percent at The North Face and by 51 percent at Vans. Timberland’s online sales jumped by 73 percent in the Americas, by 81 percent in EMEA and by 28 percent in the Asia-Pacific region.
The increases were insufficient, however, to compensate for declines at the group’s own stores and through the wholesale channel. Overall, direct-to-consumer (DTC) sales - online sales and sales at the group’s brick-and-mortar stores - represented 40 percent of its total revenues, but they were down by 16 percent for the quarter.
On the other hand, the management sees the situation in Greater China as a key indicator for the recovery that is expected to follow in other regions. VF’s sales returned to double-digit growth there in the latest quarter with an increase of 14 percent in constant currencies, and they are expected to accelerate in the third quarter before going back to a more normal pace.
Aside from Asia-Pacific, all the other regions registered double-digit declines in the second quarter, leading to an overall drop of 19 percent in reported dollars to $2.6 billion. As already reported, the management currently forecasts a 14 percent decline to at least $9.0 billion for the full financial year ending on next March 31, with an uptick in the fourth quarter. Annual net income is predicted to decrease by about 55 percent, but the group should still generate free cash flow of $600 million.
Specifically, VF is budgeting a 13 percent annual drop for TNF, recording low single-digit growth for the second half under the management of the brand’s newly appointed global president, Steve Murray.
Timberland is likely to suffer the biggest drop, estimated at 19 percent, despite a 9 percent decline in H2. Even Vans is seeing recording a decline for the year, estimated at 12 percent, in spite of a similar improvement in H2. In terms of local currencies, there were drops in the second quarter of 26 percent for TNF, 26 percent for Timberland and 11 percent for Vans. On the other hand, Dickies grew by 18 percent.
At TNF, wholesale revenues fell by 28 percent in the second quarter as lower store traffic led retailers to cut orders for the autumn season. However, the Mountain Lifestyle segment showed relative strength, and the upcoming collaboration with Gucci is expected to build brand heat. All the regions showed double-digit declines for the brand except for Asia-Pacific, where sales were down by 3 percent.
A collaboration with Jimmy Choo helped improve women’s sales at Timberland, which also recorded increases in Classic Boots and Pro and Outdoor footwear. Overall, the brand’s wholesale revenues fell by 32 percent, while DTC revenues rose by 18 percent in EMEA and declined overall by only 6 percent, thanks to their strong progress on the digital front.
Vans performed well in the wholesale channel, where it booked a 4 percent increase as major retailers raised their orders in September after depleting their inventories. Regionally, the brand’s sales were off by 14 percent in the U.S., flat in EMEA and up by 5 percent in Asia-Pacific, including a 20 percent increase in Greater China.
Next month, Vans will be the first major global brand to offer product customization on Tmall. The customization feature has helped to engage the brand’s customers especially in the U.S., where members of its loyalty club are accounting for about half of its DTC sales.