VF Corporation saw its third quarter revenues drop by 5 percent to $2,093.8 million, with foreign currency translations accounting for 2 percentage points of the decline. Net income in the quarter fell by 6.8 percent to $217.9 million.
VF’s gross margins remained near record levels for the period, and were 44.3 percent compared with 44.4 percent in last year’s third quarter. Despite a 1.0-percentage-point impact from higher pension expenses, operating margins declined only slightly, to 15.2 percent in the quarter from 15.9 percent in the prior year’s period.
For the first nine months of 2009, revenues were down by 7 percent to $5,304.9 million. Foreign currency translation accounted for 3 percentage points of the decline. Net income declined by 19 percent to $394.4 million.
Third-quarter revenues in the Outdoor and Action Sports Coalition were about even with the prior year, with operating income and margins each reaching record levels in the period. On a constant currency basis, its revenues rose by 3 percent. The global revenues of The North Face and Vans brands grew by 10 percent and 4 percent, respectively, on a constant currency basis. Revenues from outside the domestic market were up by 4 percent in constant dollars, led by exceptionally strong growth in Asia. Coalition revenues in the Americas rose by 1 percent.
Total direct-to-consumer revenues for the Outdoor and Action Sports Coalition rose by 17 percent in the quarter, with double-digit growth in The North Face, Vans and Napapijri brands. Operating income rose with margins reaching a record 23.1 percent in the quarter, with continued expansion in gross margins.
Fourth quarter revenues are expected to improve significantly, primarily due to an increase in the retail business as well as more favorable foreign currency translation rates, making for easy comparisons. In addition, operating margins should continue to expand in the quarter compared with the prior year period. The division makes up nearly 40 percent of the company’s sales.
Revenues from the Sportswear Coalition, which includes Nautica and the Kipling brand, grew by 4 percent in the quarter – a significant improvement compared with first-half results. On a constant currency basis, jeanswear revenues were down by 7 percent in the third quarter. Sales of the Contemporary Brands Coalition, were up by 3 percent (or 4 percent on a constant currency basis). Imagewear Coalition revenues fell by 15 percent in the quarter.
Total revenues outside the U.S. fell by 2 percent in constant currencies due to weak market conditions affecting the European jeanswear business in particular. However, on a currency neutral basis, the international revenues of Vans and The North Face rose in the quarter. VF Corp.’s highly profitable Asian business continued to grow strongly, with revenues up by 32 percent in the quarter.
The company’s direct-to-consumer business rose by 6 percent in the quarter, driven by strong increases in Vans, The North Face, 7 For All Mankind and Napapijri brands. It represented 15 percent of VF’s total revenues in the quarter, up nearly 2 percentage points from the prior year’s quarter. Operating margins for this business also expanded during the quarter, driven primarily by successful full-price retail formats. VF opened a total of 23 stores among all brands in the quarter, bringing the number of owned retail stores to 733 at the end of the quarter. Year-to-date, the group has opened 59 stores, and expects to open more than 80 stores in total this year.
The order book for The North Face, which accounts for about 85 percent of VF Corp.’s total orders, is up by mid single digits for spring, and even stronger than that outside the U.S., led by China. The Reef brand is being reworked after not meeting expectations.
The company is increasing its full-year earnings guidance. While it expects 2009 revenues to fall by about 6 percent (4 percent on a currency-neutral basis) earnings per share should range between $4.85 and $5.
