VF posts quarterly loss, but EMEA is strongest region

VF Corp. reported a first-quarter loss, related mainly to a $92 million non-cash pension charge. Still, the EMEA region, The North Face and Timberland were the strongest performers for the company in the period ended June 30. In the face of expected currency headwinds, the company is maintaining its fiscal year guidance that calls for at least 7 percent constant-currency revenue growth, fueled by a low-double-digit gain from TNF  and a mid-single-digit uptick from Vans. FY adjusted EPS is now pegged to grow 4 to 7 percent on a constant-currency basis to $3.05-3.15, considering the strengthening U.S. dollar and currency rates for the remainder of 2022. 

The Q1 net loss was $55,960,000 against a profit of $324,245,000 in the year-ago period when the net results benefitted from $170.2 million in proceeds from the divested occupational workwear business. Operating income was down by 68.8 percent to $63.4 million from $202.9 million. Gross margin contracted to 53.9 percent from 56.5 percent as price hikes partially offset higher freight costs. Total revenues were up 3 percent on a reported basis and 7 percent higher at constant currency at $2.26 billion versus $2.19 billion.

The company said that Italy and France drove 24 percent constant-currency revenue (+10 percent on a reported basis) growth in the EMEA region to $594.6 million, despite softer consumer confidence that continues to impact traffic levels. All VFC brands reported sales growth in the region as both DTC and wholesale revenues each increased by double-digits. “We are really confident in what we are seeing [in EMEA],” said CFO Matt Puckett, “because it’s broad-based across markets and it’s broad-based across brands.” 

In China, revenues slipped 15 percent on a constant-currency basis to $281.9 million, negatively impacted by the country’s pandemic-related lockdowns. Americas’ revenues were up by 7 percent (6 percent on a reported basis) to $1,385.1 million.

By segment, reported outdoor revenues were 24 percent higher to $768.6 million from $617.8 million as TNF had a strong quarter with 37 percent sales growth fueled by gains across regions and channels. Timberland, meanwhile, generated a 14 percent sales increase, driven by solid gains in the EMEA and Asia, as apparel accounted for 20 percent of the brand’s revenues. The segment’s year-on-year quarterly loss contracted 35 percent to $46.9 million from $71.7 million.

In the active segment, VF Corp. is still hard at work on a strategy to turn around the fortunes of Vans following the return of its global brand president Kevin Bailey earlier this year. Vans’ membership is approaching 24 million, with the biggest gains in the EMEA and APAC. Vans’ sales fell 4 percent in the period but were 4 percent higher, excluding China. Overall, quarterly profitability in the active segment declined 21 percent to $214.0 million from $270.9 million on a 4 percent revenue drop to $1.25 billion from $1.30 billion. Meanwhile, the work segment reported a 15 percent decline in period profitability to $35.0 million from $41.0 million on a 13 percent drop in revenues to $238.9 million from $274.7 million. 

Elsewhere, VF Corp. portfolio brands beyond its four largest labels increased their collective first-quarter sales by 16 percent. In line with plan, Supreme sales were flat for the period, but the brand’s European stores were said to perform well, especially year-old doors in Berlin and Milan. Altra, which holds a top market position in trail, generated a 15 percent revenue increase. The company’s PACS business posted a 30 percent sales increase on stronger demand in the EMEA and Americas and for products in its bag and travel category.

VF management told analysts that “consumer health is generally good” across its markets, adding changing buying habits among shoppers due to the economic climate being largely confined to the value segment of the market with little impact on mid-to-higher end consumers, where the majority of VFC brands are positioned.