VF Corp. - the owner of brands such as Vans, The North Face and Timberland - cut its sales guidance for the financial year ending in March 2022 to $11.85 billion from a previous $12.0 billion, as it once again lowered the forecast for its Active segment, led by Vans, while raising it for its Outdoor business, led by TNF. Sales in EMEA and China and the direct-to-consumer (DTC) channel are also expected to increase at lower rates than previously budgeted.
The new revenue guidance for the year, which reflects expected growth of 28 percent in dollars as compared to the year earlier, was provided as the group released its results for the third quarter ended Jan. 1. The group’s revenues from continuing operations increased by 22 percent at actual and constant currency rates to $3,624 million, matching the company’s guidance.
Excluding acquisitions, meaning essentially Supreme, revenues were up by a reported 15 percent and by 16 percent in constant currencies, with the growth being driven by the EMEA and North American regions, which had suffered from Covid-19 restrictions in the previous financial year. VF opines that Supreme will add around $600 million to the company’s revenues this year.
VF’s net earnings for the quarter jumped by 49 percent to $517.8 million, and they were up by 45 percent on an adjusted basis, coming in higher than what analysts had expected. For the full financial year, adjusted earnings per share, excluding exceptional reorganization costs of $52 million, are expected to be around $3.20, including a contribution of around 25 cents from the Supreme brand, which was acquired in December 2020. That would amount to a 145 percent jump in net profit to around $1.26 billion.
The adjusted gross margin is projected at 55 percent or more, representing an estimated increase of at least 1.7 percentage points, while the adjusted operating margin is now anticipated at above 13 percent, five full percentage points more than in the previous year.
Better margins and mixed sales performance in the quarter
The gross margin from continuing operations rose by 1.4 percentage points in the latest quarter to 56.1 percent, mainly as a result of reduced promotional activity, which offset incremental freight costs. The adjusted gross margin inched up by 0.6 percentage points to 56.3 percent and included a 0.2 percentage point impact from acquisitions. The adjusted operating margin widened in the quarter by 2.3 percentage points to 17.7 percent.
VF said the majority of its supply chain is currently operational. While Covid-19 related manufacturing constraints continued in the third quarter, VF expects to be back to nearly full capacity in coming weeks. At the same time, however product delays are ongoing due to continued port congestion and other logistics difficulties.
The management indicated that VF is working on diversifying its sourcing, while placing earlier orders for raw materials and products. It is using a greater number of carriers and ports. It is even chartering cargo planes if needed.
In VF’s Active segment, the quarterly revenues went up by a reported 25 percent to $1,410.6 million, or by 26 percent at constant currency rates, reflecting an increase of only 8 percent for Vans, whose sales were previously growing at double-digit rates, and a contribution of 17 percentage points from acquisitions. Supply shortages caused U.S. sales to grow by only 9 percent. Sales went up by 22 percent in Europe, but they were down by 27 percent in China. The segment’s operating profit grew by 26 percent to $245.5 million, including a $54.2 million contribution from Supreme.
In the Outdoor segment, revenues increased by 23 percent on both a reported and currency-neutral basis, reaching $1,928.4 million, with a 27 percent increase in constant dollars for The North Face and an 11 percent gain for Timberland.TNF’s sales reached a record level of over $1.2 billion in the quarter (more on this in the Outdoor Industry Compass). Benefitting strongly from a collaboration with Supreme, Timberland grew by 18 percent in the U.S. and by 14 percent in Europe, but fell by 11 percent in Asia-Pacific due to a drop of 17 percent in China The Outdoor segment’s operating income grew by 44 percent to $450.4 million.
The revenues of the Work segment, which is now represented mainly by Dickies, increased by 6 percent on a reported basis and by 5 percent in constant currencies. They fell by 40 percent in Europe due to a planned realignment in the region, including the closure of factory outlet stores.
On a geographical basis, VF’s total sales in the U.S. were up by 17 percent, while international revenues grew by 19 percent, or by 20 percent in constant dollars. On a constant-currency basis, sales in Europe went up by 28 percent, but they decreased by 9 percent in Greater China and by 12 percent in Mainland China.
Direct-to-consumer (DTC) revenues jumped in the quarter by 30 percent in both reported and constant-currency terms, including a contribution of 13 percentage points from acquisitions. Digital revenues were up by 21 percent compared with the year-earlier period, with acquisitions contributing 18 percentage points to the growth. Excluding acquisitions, digital sales were up by 61 percent as compared to two years earlier, ahead of the pandemic.
A mixed sales outlook
For its Active segment, VF now expects revenue growth in fiscal year ending in March of between 31 and 35 percent, down from previous guidance of 35 to 37 percent. Earlier in the fiscal year, VF had projected that this business would grow by up to 39 percent.
The management has become more optimistic about the revenues from its Outdoor business, which are seen growing by 26 to 28 percent for the year, up from previous expectations of 25 to 26 percent and of 24 to 26 percent before that. The growth in TNF’s top line is projected at 29 to 30 percent compared with prior guidance of 27 to 29 percent. VF continues to see its Work business increasing by 19 to 21 percent.
VF also downsized its expectations for DTC sales. It now anticipates a rise of 32 to 34 percent in sales via this channel, below the previously forecast range of 34 to 36 percent, with growth of over 15 percent in its DTC digital channel as compared to a previously projected rate of about 20 percent. The wholesale business is expected to grow at a 23 to 25 percent clip, compared with the previously guideded rate of about 25 percent.
For the group’s international sales, the management is now anticipating growth of 22 to 24 percent for the year, down from as much as 27 percent earlier in the financial year. Revenue growth expectations for the EMEA region have been cut to 28 to 30 percent from 30 to 32 percent in previous guidance, while those for the Asia-Pacific region have been trimmed to 7 to 9 percent from 12 to 14 percent. Expectations for revenue growth in non-U.S. markets in the Americas were instead lifted to 33 to 35 percent from 30 to 32 percent. VF also foresees 33 to 35 percent growth in the U.S.
