VF Corporation has reported that in the first quarter, group revenues rose by 1.4 percent to $1,749.9 million. Net income increased by 62 percent to a record $163.5 million for the quarter, thanks in part to foreign currency translations and lower pension expenses. Gross margins outperformed expectations.
The Outdoor & Action Sports segment saw a 10 percent sales increase to $678.6 million, generating a 50 percent boost in operating income to a record level of $88.6 million for the period. The global revenues of the The North Face and Vans brands grew by 9 percent and 20 percent, respectively.
No details were released about TNF’s performance in Europe, but company executives indicated that the brand grew in all four European regions, with particular strength in the Nordic countries and in Germany, Austria and Switzerland.
The outlook is very positive for the major markets in this important segment of VF’s business. TNF’s orders for autumn shipments are up by 20 percent in the U.S. and by 25 percent in Europe. At Vans, orders have risen by 20 percent in Europe and nearly doubled in the U.S.
The Outdoor & Action Sports segment’s total revenues in the Americas region rose by 11 percent, while international revenues were up by 8 percent in the first quarter. The retail revenues of the segment rose by 28 percent, with double-digit growth for TNF, Vans, Kipling, Napapijri and Lucy.
The group’s total direct-to-consumer revenues increased by 23 percent in the quarter, driven by new store openings and strong gains in comparable store sales. VF Corp. opened a total of 16 stores across all brands, bringing the number of owned retail stores to 766 at the end of the quarter.
The Outdoor & Action Sports segment sustained the rest of the group outside the U.S. Including the other operations, the group’s total revenues in foreign markets increased by only 2 percent and were off by 5 percent in terms of local currencies. Strong growth internationally in Outdoor & Action Sports and in Jeanswear in Asia, Mexico, South America and Canada was offset by continued difficult market conditions affecting jeanswear in Europe and the exit of VF Corp.’s mass market business in Europe.
The company’s momentum in Asia continued in the first quarter, with revenues rising by 31 percent in the quarter and double-digit growth in The North Face, Vans and Lee brands.
The group’s consolidated gross margin increased by 4.5 percentage points to a record 46.7 percent in the quarter. This substantial improvement was driven by three primary factors: lower product costs; continued expansion and improved gross margins in retail stores; and generally clean inventories.
Operating margins rose to 12.8 percent from 9.4 percent, benefiting in part from restructuring measures taken last year, although restructuring costs impacted margins by 0.6 percentage points in the quarter. Marketing spending rose by 12 percent.
The great bottom line stemming from a modest sales increase has been common lately, as brands have benefited from lower closeout sales compared with the prior year. In addition, last year’s restructuring moves have meant lower fixed costs, and product acquisition costs are down as well. Some larger brands are seeing better comparable store sales at own stores. Retail confidence is also noticeably improved, especially for brands that have had good sell-throughs in recent quarters. This has been stronger in apparel for cold weather.
Because of the very good first quarter and the order backlog, VF said it was going to increase its investments in marketing by a further $35 million, for a total of $85 million, with certain focuses. For TNF, it plans its first-ever TV ad campaign in the U.S., an improved consumer experience at thenorthface.com, a drive to raise market share in Europe, and a stronger roll-out of its Red Flag consumer campaign in China. There, it plans to increase its door count by 40 percent.
For the full year, VF Corp. is raising its revenue guidance to an increase of 3 to 4 percent, up from its prior guidance of 2 to 3 percent. The company expects sales in Outdoor & Action Sports to rise by more than 10 percent this year, versus its previous expectation of a high single-digit increase. The outlook for Asia has also strengthened, and the group currently anticipates that revenue growth there could exceed 25 percent this year.
The gross margin is expected to reach 46 percent for the year, an increase of 1.7 percentage points over 2009 levels, and the net profit is anticipated to grow to an indicated $660 million from the 2009 level of $461 million. The company doesn’t think the global economic situation has rebounded just yet, but thinks that retailers are willing to take higher risks with their strongest brands, and VF is gaining share as a result.
