The Vans brand finished the year with an impressive rise in demand, as its sales surged by 35 percent in constant currencies in the last quarter, with ample double-digit rate increases in all geographic areas.
The action sports brand's turnover was up by 31 percent in Europe, the Middle East and Africa (EMEA) for the three months, as well as 38 percent in the Americas and 21 percent in Asia-Pacific. The growth was spread across the brand's wholesale and retail sales, which both surged by more than 30 percent, including over 50 percent in online sales growth.
In North America, Vans was the first entity in VF Corporation to raise its own retail sales to $1 billion last year. They inflated by nearly 30 percent, with a comparable sales jump of more than 20 percent.
VF's management team emphasized in a conference call with analysts that the growth spurt at Vans came from multiple product platforms, and that the diversification should continue to fuel the group in the next fiscal year, which will start on April 1, 2018 and end in March 2019.
Vans' sales of Classic shoes were up by more than 25 percent for the quarter and its Progression footwear line advanced by more than 20 percent with products such as the new Ultra Range, All Weather MTE and Pro franchises.
Apparel and accessories delivered double-digit sales growth, and the customer offering more than trebled in sales. For the full year, the Vans brand managed a sales increase of 19 percent in reported terms. Excluding exchange rate changes, the increase amounted to 19 percent as well, with the same increases in Americas and EMEA, but a sales rise of 24 percent in Asia-Pacific.
VF acknowledged that Vans would face tough comparisons this year, but it has been one of the purposes of VF's heightened investments to support continued expansion for the footwear brand. The group therefore predicts that it will deliver double-digit sales growth next year.
The outdoor and action sports brands in the VF group generated a sales increase of 16 percent to $2,500.2 million for the fourth quarter. This was a rise of 13 percent in constant currencies, combining the sales increase at Vans with rises of 6 percent for The North Face and 8 percent for Timberland. The division's operating profit for the three months landed at $486.3 million, up by 24 percent.
The North Face finished the year with a whopping rise in European demand, as its sales soared by 38 percent in EMEA for the quarter, amounting to a jump of 32 percent in constant currencies. The outdoor brand's European sales have been growing at a double-digit rate for eight quarters in a row. However, its sales were down by 1 percent in the Americas, due to contracting wholesale orders. They increased by 8 percent in Asia-Pacific, including the negative impact of structural investments in China. The Asian rise was entirely due to a 30 percent jump in retail sales, while the brand's Asian wholesale business was affected by pro-active inventory management.
TNF's quarterly sales performance was below the guidance previously issued by VF. The group explained that it reduced its promotional activity and stepped up “aggressive efforts” to clear Amazon of unauthorized dealers. This came after TNF agreed about five months ago to work directly with the online retailer in the U.S., as it has already done in Europe.
For the full year, TNF saw its European sales climb by 23 percent in constant currencies. A large part of the increase was generated by the Urban Exploration range. The European uptick compared with a global sales increase of just 3 percent. It was dragged down by a decline of 3 percent in the Americas, while sales in Asia-Pacific increased by just 3 percent, with buoyant demand for the Urban Exploration range.
After a strong start to 2018, VF reiterated its 2021 targets for the brand, adding that TNF's growth for 2019 should be in line with the 6 to 8 percent range laid out at its latest Investor Day.
At Timberland, while the Classic business was sluggish, the footwear brand raised its sales of other footwear and apparel, with avid demand for Sensor Flex and Aerocore products. Timberland's sales were up in EMEA by 14 percent in the quarter and 6 percent in the full year, driven by locally designed product. VF said that it would step into more sustainable and diversified growth in the next fiscal year, after significant investments and management changes in 2017.
For the full year, the outdoor and action sports division's sales added up to $8,212.5 million, which was a rise of 8 percent in reported terms and 7 percent in constant currencies. On this basis, the sales jump of 19 percent for Vans was accompanied by increases of 3 percent for TNF and 1 percent for Timberland. These three big brands together grew at a combined rate of 8 percent.
VF said that Napapijri had been another standout, after the group applied an incubator concept for the brand. Napapijri has been growing at double-digit rate for several quarters. The division's operating profit amounted to $1,378.3 million for the year, an increase of 11 percent in reported terms and 15 percent in constant currencies.
Adding its denim and fashion business, the entire VF group generated stronger than expected results in the fourth quarter and the full year. Its sales were up by 7 percent to $11.8 billion in 2017, including two percentage points of growth contributed from the Williamson-Dickie acquisition.
The group's gross margin from continuing operations moved up by 1.2 percentage points to a record of 50.5 percent in 2017. On an adjusted basis, the gross margin was up by 1.0 percentage points to 50.5 percent.
Operating income moved up by 10 percent to $1,503.1 million, but the group ended the year with profit of just $614.9 million, down by 43 percent, chiefly due to a tax adjustment.
Steve Rendle, VF's chief executive since the start of last year, said that 2017 was a transformational year for the group, as it embarked on a program to become more customer-focused and to adjust to the far-reaching changes in the retail market. Its own and wholesale digital sales increased by more than 25 percent, accounting for 55 percent of the group's growth. Own retail sales as a whole increased by 15 percent, with comparable growth of 12 percent, which raised the percentage of retail sales to 30 percent of VF's global revenues.
VF's strong performance for the year enabled it to reinvest about $100 million into its business, to take advantage of the current drive and to accelerate growth. Most of that went to extra capability for its consumer-centric strategy.
Among its top priorities for the year, VF wants to protect the soaring growth at Vans and to support further expansion for TNF and Timberland, particularly in North America. Another priority is to integrate Williamson-Dickie and Icebreaker. VF announced an agreement late last year to acquire the New Zealand merino brand. VF said it would bring in sales of about $150 million, forming a merino business of about $300 million with the Smartwool brand. The deal should be accretive from the first year, albeit at a small level for the group.
At the same time, VF has realigned the functions of group presidents, meaning that each of them will be responsible for one geographic region and have one global brand reporting to them.