All the three major brands in the Outdoor & Action Sports segment of VF Corp. had double-digit growth in local currencies during the fourth quarter of 2014. The biggest one, The North Face, enjoyed a 12 percent increase, driven by a jump of 30 percent in its direct-to-consumer (DTC) business.
In the Americas, which represents about 70 percent of TNF's turnover, sales grew by a mid-teen percentage (means around 15%), with DTC revenues rising by 25 percent. They rose by a low single digit in Europe, which has a share of around 20 percent in total revenues. A stronger increase of 20 percent was reached in Greater China, with a particularly strong showing in Hong Kong and Taiwan. TNF's comparable store sales went up at a double-digit rate.
TNF's revenues increased by 12 percent in constant currencies for the full financial year as well. In reported dollars, they grew by 11 percent to $2.3 billion. Product-wise, much of the increased turnover came from the new mountain athletics range launched last spring and from new technologies such as Fuseform, which had a particularly strong response from the market in the latest quarter, and Thermoball, which generated sales of more than $100 million in 2014. Higher sales are expected from this range in 2015, particularly in Europe, judging from the buyers' response at the Ispo Munich show, where TNF came out with a new, more open, “story-telling” booth design.
Vans and Timberland, the two major footwear brands of VF, rose strongly on a global basis in the fourth quarter of 2014 and for the year as a whole, although the growth was more muted in Europe.
In the fourth quarter, Vans grew by 17 percent in dollars and by 20 percent in local currencies. The brand's European sales declined slightly in dollars but rose at a high-single digit.
Sales increased by 20 percent in the Americas and by more than 50 percent in the Asia-Pacific region, with a strong boost in China and Korea. Europe and the Americas represent about 30 and 60 percent of the brand's turnover, respectively.
VF expects Vans to grow by around 15 percent in 2015, boosted by the expansion of its new waterproof-breathable footwear line and the introduction of a new Classic Plus line of retro-inspired shoes.
Timberland was down at a low single-digit rate in Europe in dollars during the latest quarter, but up by a high single digit in local currencies, thanks in part to new stores and expansion in online sales. The brand's revenues jumped by almost 25 percent in the Americas, which represents about 40 percent of its sales, and by a mid-single digit rate in Asia-Pacific.
Timberland's sales went up by 13 percent to $1.8 billion for the full financial year, with a 15 percent increase in constant currencies. Both Timberland and Vans are expected to grow by around 15 percent in 2015, company officials indicated to financial analysts Friday, adding that Timberland's operating margin has been improving strongly, moving closer to 20 percent from less than 10 percent at the time of its acquisition.
The VF group's total revenues increased by 8 percent to $12.3 billion last year, thanks in part to an extra selling week. Net earnings fell by 13 percent to $1,047.5 million because of the impairment charge.
The gross margin rose by 0.7 percentage points to a record of 48.8 percent. The margin achieved outside the U.S. has been growing faster, and it remains comfortably above the U.S. level in spite of the recent changes in exchange rates. However, the recent appreciation of the Swiss franc will have an impact on the operating expenses of VF's European head office in Switzerland if it persists, and it may lead the group to raise prices. On the other hand, the weakened euro may make acquisition opportunities in Europe more attractive, the management said.
The group's adjusted operating margin (Ebit) improved to 16.2 percent in the fourth quarter from 15.5 percent in the year-earlier period. It rose to 14.9 percent for the year from 14.4 percent in 2013. In the fourth quarter, a strong 21 percent gain to $432.3 million was recorded in the operating profit of the Outdoor & Action Sports Coalition on sales of $2.2 billion, 38 percent of which were generated outside the U.S. For the full year, the segment delivered a 19 percent increase in operating income to $1,312.9 million on 13 percent higher sales of $7,198.9 billion, which represented 59 percent of the group's total turnover.
Special goodwill impairment charges of $396 million taken on three brands – 7 for All Mankind, Ella Moss and Splendid - led the company to report a net profit of only $122.1 million for the quarter, down from $367.7 million in 2013.
The management is projecting increases in net income per share for this year of 12 percent in constant currencies and 4 percent in dollars. The gross margin should improve by 0.2 percentage points, with generally flat raw material costs and an improved product mix offsetting higher labor costs. The operating margin should remain around 15 percent.
The Outdoor & Action Sports Coalition is expected to grow by low single-digit percentage in dollars and by a low double-digit percentage in currency-neutral terms in the U.S. as well as abroad. The outlook is improving in Europe, even in Southern Europe.
For the whole year, Vans went up by 17 percent in terms of dollars and local currencies, reaching about $2 billion, while Timberland went up by 13 percent to $1.8 billion, with a 15 percent increase in constant currencies. Both brands are expected to grow by around 15 percent in 2015, company officials indicated to financial analysts in commenting on the results.
