VF Corporation slightly raised its guidance for the full year after sizeable gains for its largest sports and outdoor brands in the second quarter. They were driven by own retail sales and international markets, with particularly buoyant demand for The North Face in Europe.
The seasonally small quarter marked another shift from wholesale to retail sales, which was accentuated by U.S. retail bankruptcies. VF pledged to invest an extra $40 million to support the current growth. Some of that should go directly to the development of own retailing, including digital sales, while other resources will be allocated to investments in other strategic priorities and management.
The VF group's sales were up by 1.7 percent to $2,333.3 million for the quarter, an increase of 3 percent in constant dollars. This included a rise of 3.8 percent to $1,466.2 million for VF's outdoor and action sports brands, up by 5 percent in constant currencies.
Vans alone raised its sales by 9 percent in constant currencies for the quarter. The skating brand's own retail sales were up by more than 25 percent, fueled by a 45 percent rise in online sales, while its wholesale business was down at a low single-digit rate.
The Vans brand's turnover was up by 5 percent in Europe, the Middle East and Africa (EMEA) in constant currencies, entirely pushed up by own retail sales. They were up by more than 20 percent, driven by a jump of over 40 percent in online sales, while the brand's wholesale business slumped at a low single-digit rate, due to a shift in the timing of shipments. Vans is predicted to deliver a low double-digit European sales increase for the full year.
The Vans brand's sales jumped by 7 percent in the Americas, again with a combination of growing retail sales and a decline in wholesaling. This was caused chiefly by the family retail channel, where Vans is implementing a product transition and facing tough comparisons, because it made strong gains in this channel last year. The brand is predicted to achieve low double-digit sales expansion in the Americas for the full year.
Demand for Vans is altogether buoyant in Asia Pacific, where underlying sales soared by 29 percent for the quarter. The rise was fueled by a 45 percent jump in retail sales, with a rise of nearly 80 percent in online sales in China. On a global basis, the growth of the Vans brand is predicted to end up at the higher end of its low double-digit growth range for the full year.
The group's leading outdoor brand, TNF, saw its sales move up by 6 percent in constant currencies. The rise was supported by strong retail sales, while TNF's wholesale business was nearly flat, but it would have increased at a high single-digit rate without the retail bankruptcies in the U.S. market.
TNF's sales increase was fueled by buoyant sales in EMEA, up by 26 percent. The outdoor brand's European wholesale business soared by nearly 40 percent while its retail sales moved up at a high single-digit rate. TNF's European sales are projected to increase by more than 15 percent in Europe for the balance of the year.
The outdoor brand's turnover rise was weaker in the Americas, up by just 1 percent in constant currencies. It was impacted by a high single-digit decrease in wholesale turnover, chiefly due to U.S. bankruptcies, while a rise of more than 40 percent in online sales fueled retail sales expansion. The brand's turnover in Asia Pacific was up by 1 percent in constant currencies as well. The launch of the Outdoor Training range in Asia was accompanied by a marketing campaign and the opening of the brand's first outdoor training station in Shanghai, which supported sell-through of more than 40 percent. VF anticipates that TNF's sales growth for the year will be at the higher end of an earlier prediction of a mid-single-digit sales increase.
As for Timberland, the brand returned to growth in the second quarter, as anticipated. Its sales were up by 3 percent in constant currencies, with small increases in both wholesale and retail sales. The brand's constant-currency turnover was up by 4 percent in EMEA and in the Americas. Timberland continues to diversify in North America and it enjoyed strong demand for its latest footwear platforms and apparel in Europe.
The footwear brand's Asian business was down slightly, impacted by a decision to shutter underperforming stores in some mature markets. Its sales in China soared by 60 percent and its regional online sales jumped by more than 50 percent. The Timberland brand is predicted to deliver low single-digit growth for the full year.
Operating profits for the entire outdoor and action sports division, which further includes Eagle Creek, Reef, Smartwool and more, slumped by 1.2 percent to $121.8 million. But this was entirely due to exchange rate changes, since operating profits advanced by 12 percent in constant currencies.
The group's gross margin from continuing operations went up by 1.6 percentage points to 49.7 percent. However, the group's income from continuing operations declined by 16 percent to $114.9 million, due to the extra investments for the company's expansion.
The group's performance was outlined in a conference call with analysts steered by Steve Rendle, who became its chief executive at the start of this year. It marks the beginning of a five-year strategy detailed by the VF group at its investor day earlier this year. He was upbeat about the start of the period, although sales were flat at nearly $4.9 billion and income from continuing operations was down by 13 percent to $329.5 million for the first six months of the year.
The company expects its sales to increase by about 2 percent to $11.65 million for the full year, up by 3 percent in constant currencies. This compares with earlier guidance of a low single-digit percentage rate increase, including a negative impact of two percentage points from exchange rate changes.
The outdoor and action sports business is predicted to raise its sales by about 5 percent, up by 6 to 7 percent in constant currencies, against the earlier guidance of a mid-single-digit percentage rate increase.
While VF previously anticipated a sales rise at a high single-digit rate for own retail sales, the latest projection calls for them to increase by 10 to 11 percent, with a contribution of more than 25 percent from online sales.
The group predicts that its gross margin will land at 49.8 percent, up by 0.2 percentage points compared with the previous estimate and by 0.4 percent compared with the gross margin for 2016. The guidance for the operating margin is unchanged at about 14 percent.
