VF Corp., under interim president and CEO Benno Dorer, is vowing to take all necessary actions to improve its operating performance heading into its FY24 which commences on April 1. Already, the The North Face, Vans and Timberland parent has decided to slash its quarterly dividend by 41 percent to $0.30 a share; divest its profitable global packs segment consisting of Kipling, Eastpak and JanSport; sell-off other assets including a sale/leaseback of its Stabio, Switzerland European headquarters; and to lower costs and inventory levels further. The company has also tightened its projected capital expenditure budget for the current year to $200 to $230 million.
“VF will sharpen its near-term focus on the biggest consumer opportunities within our existing brand portfolio and on enhanced operational performance,” Dorer told analysts, later adding that the company “lost some focus” during the Covid-19 period but remains well suited to improve its overall operating performance.
Q3 results less than optimal
Third-quarter results were less than optimal but the EMEA region remained a bright spot. Net profit declined by 2 percent to $507.9 million from $517.8 million. Operating income was off 24 percent at $516.0 million, and Ebit from continuing operations was down by 29 percent to $455.9 million. The gross margin slipped by 140 basis points. Persistent supply chain challenges impacted results. Additionally, greater volatility in distribution and logistics, particularly in the Americas, led to inconsistent on-time deliveries to the group’s wholesale partners and inefficiencies in its U.S. direct-to-consumer segment during parts of the period. Gross inventories were up by 67 percent to $850 million at period end. The group intends to reduce that level by about $300 million in Q4 but intends to carry higher levels of core and replenishment inventory into FY24 for the Dickies, The North Face, and Vans brands.
| VF Corp. | |||
|---|---|---|---|
| Consolidated statement of operations ($ thousand) | |||
| 2022 | 2021 | Change | |
| Q3 | |||
| Net revenue | 3,530,667 | 3,624,384 | -2.6% |
| Cost of goods sold | 1,593,048 | 1,592,604 | 0.0% |
| Selling, general & administrative expenses | 1,421,586 | 1,353,338 | 5.0% |
| Impairment of goodwill and intangible assets | – | – | – |
| Total costs and operating expenses | 3,014,634 | 2,945,942 | 2.3% |
| Operating income | 516,033 | 678,442 | -23.9% |
| Net interest expense | 50,230 | 33,388 | 50.4% |
| Loss on debt extinguishment | – | 3,645 | – |
| Other income (expense), net | -9,901 | -95 | – |
| Pre-tax income from continuing operations | 455,902 | 641,314 | -28.9% |
| Tax expense (benefit) | -51,966 | 123,513 | – |
| Income from continuing operations | 507,868 | 517,801 | -1.9% |
| Income from discontinued operations (net of tax) | – | – | – |
| Net | 507,868 | 517,801 | -1.9% |
| Earnings per share (diluted) | 1.31 | 1.32 | -0.8% |
| 9 months | |||
| Net revenue | 8,872,862 | 9,017,176 | -1.6% |
| Cost of goods sold | 4,134,207 | 4,027,601 | 2.6% |
| Selling, general & administrative expenses | 3,828,157 | 3,549,763 | 7.8% |
| Impairment of goodwill and intangible assets | 421,922 | – | – |
| Total costs and operating expenses | 8,384,286 | 7,577,364 | 10.6% |
| Operating income | 488,576 | 1,439,812 | -66.1% |
| Net interest expense | 115,395 | 100,533 | 14.8% |
| Loss on debt extinguishment | – | 3,645 | – |
| Other income (expense), net | -113,895 | 16,495 | – |
| Pre-tax income from continuing operations | 259,286 | 1,352,129 | -80.8% |
| Tax expense (benefit) | -74,190 | 216,303 | -134.3% |
| Income from continuing operations | 333,476 | 1,135,826 | -70.6% |
| Income from discontinued operations (net of tax) | – | 170,273 | – |
| Net | 333,476 | 1,306,099 | -74.5% |
| Earnings per share (diluted) | 0.86 | 3.32 | -74.1% |
| Source: VF Corp. | |||
Total Q3 revenues fell by 2.6 percent to $3.53 billion from $3.62 billion. Supply chain challenges were persistent during the period as The North Face revenues rose 7 percent (+13% in constant currency), with Timberland flat but up 6 percent in constant currency, Vans down 13 percent (-9% C$), and Altra sales up 10 percent.
The EMEA had its seventh-consecutive quarter of double-digit sales growth, with revenue up 10 percent on a reported basis, including a 13 percent increase for The North Face and 7 percent for Vans. Overall, 10 of the group’s 11 brands produced higher sales in the region during the period. Americas’ sales were down 1 percent in the period, with North America particularly challenged at Vans and Dickies. APAC region sales rose by 4 percent, driven by mid-teens growth across Asia and a 1 percent decline in Greater China.
By segment, outdoor posted a 1.5 percent increase in operating profit to $457.0 million on 3.9 percent revenue growth to $2.0 billion; active operating profit slid by 42 percent to $146.9 million on an 11 percent sales drop to $1.26 billion; and work operating profit declined by 61 percent to $18.5 million on 5.7 percent revenue contraction to $268.9 million.
| VF Corp. | ||||
|---|---|---|---|---|
| Revenue - Q3 (€ million) | ||||
| 2022 | 2021 | Change | Change (constant currency) | |
| By brand | ||||
| Vans | 926.9 | 1,060.4 | -12.6% | -9% |
| The North Face | 1,321.2 | 1,240.3 | 6.5% | 13% |
| Timberland | 595.5 | 593.4 | 0.4% | 6% |
| Dickies | 177.0 | 211.5 | -16.3% | -13% |
| Other | 510.1 | 518.8 | -1.7% | 5% |
| Total | 3,530.7 | 3,624.4 | -2.6% | 3% |
| By region | ||||
| Americas | 2,093.9 | 2,132.7 | -1.8% | -1% |
| EMEA | 983.3 | 1,003.3 | -2.0% | 10% |
| Asia-Pacific | 453.4 | 488.3 | -7.1% | 4% |
| Total | 3,530.7 | 3,624.4 | -2.6% | 3% |
| International | 1,629.3 | 1,676.5 | -2.8% | 8% |
| By channel | ||||
| DTC | 1,937.4 | 1,981.5 | -2.2% | 3% |
| Wholesale | 1,593.3 | 1,642.9 | -3.0% | 2% |
| Total | 3,530.7 | 3,624.4 | -2.6% | 3% |
| Revenue - 9 months (€ million) | ||||
| 2022 | 2021 | Change | Change (constant currency) | |
| By brand | ||||
| Vans | 2,825.9 | 3,170.7 | -10.9% | -7% |
| The North Face | 2,753.2 | 2,490.2 | 10.6% | 17% |
| Timberland | 1,389.1 | 1,388.2 | 0.1% | 7% |
| Dickies | 533.7 | 640.7 | -16.7% | -14% |
| Other | 1,371.0 | 1,327.4 | 3.3% | 11% |
| Total | 8,872.9 | 9,017.2 | -1.6% | 4% |
| By region | ||||
| Americas | 5,233.1 | 5,241.7 | -0.2% | – |
| EMEA | 2,510.4 | 2,515.9 | -0.2% | 14% |
| Asia-Pacific | 1,129.3 | 1,259.6 | -10.3% | -2% |
| Total | 8,872.9 | 9,017.2 | -1.6% | 4% |
| International | 4,132.7 | 4,257.5 | -2.9% | 8% |
| By brands | ||||
| DTC | 4,082.6 | 4,247.3 | -3.9% | 1% |
| Wholesale | 4,790.3 | 4,769.9 | 0.4% | 6% |
| Total | 8,872.9 | 9,017.2 | -1.6% | 4% |
| Source: VF Corp. | ||||
2023 forecasting reflects customers’ “conservative approach”
The group, which expects to see lower and more normalized levels of airfreight volumes going forward, an easing of ocean rate and more modest FOB inflationary impacts for the Fall 2023 and Spring 2024 seasons, is forecasting a FY gross margin drop of approximately 200 basis points due to higher promotional and markdown activity. VF customers have adopted “a more conservative approach” to the spring/summer order book.
For FY23, VF Corp. is projecting 3 percent constant dollar sales growth as Vans declines by a high-single-digit percentage, versus a prior outlook of down by a mid-single-digit percentage, and The North Face to up by at least 14 percent in constant dollars against prior guidance of a 12 percent increase. Currently, the group sees FY24 total revenues rising by at least a low-single-digit percentage in constant dollars as operating earnings expand by double digits and gross and operating margins increase.
