VF Corp is maintaining its full-year revenue growth guidance of 5-6 percent, citing its balanced portfolio and a building recovery in China as two examples, but has lowered expectations on some key financial metrics due to currency headwinds, higher inventory levels and a more promotional environment. The North Face parent has decreased its full year, adjusted operating margin outlook to approximately 11 percent from 12 percent, adjusted its annual gross margin forecast to a decline of 100 to 150 basis points and lowered its FY EPS expectation to $2.40-$2.50 a share from $2.60-$2.70 earlier. The company intends to meet its new financial targets through several avenues, including the profitable sale of excess inventory and a reduction in all non-priority spending. The lowered operating margin target is related to higher inefficiencies in the supply chain, storage costs for excess inventory and the emerging promotional/discount environment in North America. The company ended the period with an 88 percent jump in year-over-year inventories to $2.75 billion, including $510 million in in-transit merchandise.
In the second quarter, the company reported a $118.4 million loss against a $464.1 million profit for the period ended Sep. 30. The operating loss was $90.8 million against an operating profit of nearly $558.5 million. Total revenues slipped 3.7 percent to $3,080,600 from $3,198,235,000. The North Face had the strongest sales growth in the period, rising 14 percent in constant currency (8% on a reported basis), on double-digit growth across all regions and channels. Vans’ sales, meanwhile, were negatively impacted by a disappointing Back-To-School season in the Americas and fell 8 percent on a constant currency basis (-13% as reported). After seeing traffic to Vans’ stores fell below historical levels during the period, VFC intends to prioritize activities to drive store traffic in the second half. Timberland sales rose 3 percent in the period and were slightly impacted by shipment times.
Elsewhere, Supreme revenues gained 7 percent on a “good opening” to the brand’s fall/winter season and good trends in Japan; and aggregate outdoor emerging brand sales increased by 14 percent. Altra sales were up mid-single digits in the Americas and by triple digits in the EMEA; Smartwool sales increased by low double-digits driven by mid-double-digit growth in apparel; and Icebreaker sales rose mid-single digits.
By segment, Outdoor revenues rose 3.2 percent to $1,555,328,000 but its operating profit slipped 8.3 percent to $260,439,000. Active operating profit declined 58 percent in the third quarter to $180,255,000 as segment revenues fell 9.5 percent to $1,260,110,000. Work operating profit dipped 36 percent to $39.5 million on an 11.4 percent drop in revenues to $265.2 million.
Sales in the EMEA rose 12 percent on a constant-currency basis in the third quarter and were 16 percent higher in the first half. There was broad-based growth by all brands as the sales of 10 labels increased by double-digits. The region’s direct-to-consumer sales were also up by double-digits, as were revenues in the key markets of France, Italy, Spain, and Germany. Revenues in China were down 10 percent, but an improvement from a 30 percent decline in the first quarter. Meanwhile, third quarter Americas’ revenues were down 3 percent but up 3 percent, excluding the Vans business.
