VF Corp. transition for Vans’ business moving forward

In Q3 ended Dec. 31, Vans’ sales fell 8 percent year-over-year in constant currency to $607.6 million from $668.2 million as new products continued to outperform brand icons. Through nine months, brand revenues are down by 13 percent in constant currency to $1.86 billion. Over recent months, VF has shuttered about 9 percent of Vans’ Direct-to-consumer stores and approximately 9 percent of the brand’s doors globally as it reshapes the business under Vans global brand president Sun Choe, who joined the business last May after seven years as chief product officer for Lululemon.

Meanwhile, both of VF Corp.’s primary outdoor businesses generated higher year-over-year sales in the period ended Dec. 31 as the group reported ongoing progress with its ongoing ‘transformation’ program and quarterly results well ahead of expectations. Nonetheless, VFC share price fell by 3.9 percent in trading yesterday to close at $25.56.

“…We are making great strides in transforming VF into a truly differentiated, multi-brand operator,” commented Darrell in a prepared statement. “We look forward to sharing more on the plans for our iconic brands at our upcoming Investor Day in March (March 6).”

VF delivered an operating income of $225.8 million against a loss of $91.2 million in Q3 as total revenues inched 1.9 percent higher to $2.83 billion from $2.78 billion. Direct-to-consumer sales fell by 3 percent to $1.57 billion; wholesale revenues expanded by 8 percent to $1.27 billion and were aided by higher re-orders. Gross margin expanded by 150 basis points to 56.3 percent, fueled by lower product costs and fewer promotions. Total inventories were down by 14 percent year-over-year and net debt was $1.9 billion lower at period end. 

The North Face reported sales climbed 5 percent higher in Q3 to $1.25 billion, helped by broad-based growth across channels and regions. The brand’s Americas business was fueled by lower promotions and enhanced merchandising. Timberland sales grew 11 percent on a reported basis to $527.0 million in Q3 as the brand experienced positive revenue growth across regions and continued market momentum for its iconic ‘Yellow boot.’

With the results, VF issued Q4 and FY guidance. Final period revenues are forecast to contract by 2 to 4 percent on a constant-currency basis with the group projected to report an adjusted operating loss of $30 million, but higher year-over-year gross margin. Meanwhile, the group raised its FY free cash flow guidance by 4.6 percent to $440 million due to improved core fundamentals and higher-than-planned proceeds from the sales of non-core physical assets. 

The group confirmed that it has no immediate plans to make acquisitions and instead will focus on improving its current business. As for China, VF remains bullish about the long-term but admits the economy there currently “is pretty soft relative to the past,” Darrell commented.