VF Corp lifted its annual guidance after posting better-than-expected earnings and sales in its first quarter ended June 30 as retail demand for the company’s top brands continued to recover from the impact of the Covid-19 pandemic. Revenues for the three months more than doubled to $2,194 million, compared with $1,076 million the same period a year ago, beating analysts’ forecasts of $2.17 billion. They were up by 7 percent from the same quarter of 2019.
The Denver-based owner of The North Face, Vans, Timberland, Icebreaker, Smartwool and other brands reported a rise in net income to $324.2 million, up from $285.6 million a year earlier. The gross margin from continuing operations increased by 3.6 percnetage points to 56.5 percent, primarily driven by reduced promotional activity. The group’s CEO, Steve Rendle, said VF had hit “pre-pandemic revenue levels while driving an earnings recovery well ahead of our initial expectations. We continue to see broad-based momentum across the portfolio, supporting an increase to our fiscal 2022 outlook for each of our largest brands.”
Rendle also said, ”Though the first quarter is a relatively small portion of our total year, this strong start reinforces my confidence in our ability to accelerate growth through fiscal 2022 and beyond.” VF is now forecasting full-year revenue of at least $12 billion, up from $11.8 billion in 2020, including around $600 million from the Supreme brand bought last December for $2.1 billion.
By segment, revenues for VF’s Outdoor unit are now expected to increase by 24-26 percent against prior guidance of 23-25 percent. VF is projecting a rise of 37-39 percent for the Active segment, compared with 34-36 percent, and 16-18 percent for its Work segment, up from 10-12 percent previously. In June, the company completed the sale of its Occupational Workwear business to Redwood Capital Investments, which means the segment now only consists of the Dickies and Timberland Pro brands.
International revenues are predicted to grow by 25-27 percent this year, with increases of 29-31 percent in the EMEA region, 18-20 percent in Asia-Pacific and 28-30 percent in non-US Americas. Direct-to-consumer (DTC) revenues are expected to go up by between 39-41 percent versus 38-40 percent, including digital growth of 29-31 percent. VF is guiding for an adjusted gross margin exceeding 56 percent, up by more than 2.7 percentage points from last year, and an adjusted operating margin of 13.0 percent against prior guidance of 12.8 percent.
Across the group, DTC revenues grew by 97 percent in the latest quarter. The digital component showed an increase of just 25 percent, but it was 72 percent higher than in the same quarter of 2019. Wholesale revenues performed even better, rising by 111 percent from a year ago as retailers’ ordering patterns have normalized.
International revenues improved by 84 percent in dollars and by 68 percent in local currencies during the latest quarter, driven by a 126 percent gain in Europe. Sales in Greater China went up by only 19 percent.
The Outdoor segment rose by 81 percent to $617.8 million in the quarter, and its operating loss declined to $71.7 million from $160.7 million a year ago. In terms of sales, The North Face was up 93 percent, Timberland 70 percent and Dickies 61 percent. TNF saw its wholesale business jumping by 142 percent, helped by large replenishment orders following a strong spring sell-through for its on- and off-mountain products, and its DTC business gained 53 percent. For Timberland, wholesale and DTC rose at more balanced rates of 74 percent and 65 percent, respectively.
The Active segment’s revenue increased by 128 percent to $1,302 million in the second quarter, including a 110 percent raise at Vans. During the quarter, Vans was a stand-out with sales growth of 110 percent, including increases of 140 percent in the U.S., 148 percent in EMEA and 239 percent in Other Americas, but Asia-Pacific showed a more modest growth of 29 percent. The Active segment’s operating profit improved to $270.9 million from $7.1 million a year ago.
Supreme contributed $145.7 million in extra sales, gross profit of $89 million and operating income of $31.7 million in the quarter.
VF said that most of its supply chain was currently operational but noted that the resurgence of Covid-19 factory lockdowns in key sourcing countries had resulted in new manufacturing capacity constraints. It added that port delays, equipment shortages and other logistics challenges had contributed to delays, leading the group to use expedited freight shipments to ease congestion.The group is budgeting extra airfreight costs of about $35 million in 2021.
Stores in North America and the EMEA region have all re-opened by now, while in Asia-Pacific, including mainland China, all VF-owned retail outlets were open at the start of the quarter, but additional stores have since closed down, resulting in 5 percent of region’s store fleet being shuttered.
