There were no signs of a slowdown in the third quarter for the Vans brand, which delivered a 26 percent sales increase in constant currencies and led the growth of the outdoor and action sports division at VF Corp.
The performance encouraged VF to raise its forecast again for this full year and to commit an extra $25 million for investments in marketing, digital capacity and innovation in manufacturing, among other things. VF had already committed to an extra spend of $40 million in July. This is meant to fuel more rapid development as VF deploys the five-year plan outlined earlier this year, calling for its sales to expand at a compound annual growth rate of between 4 and 6 percent over the next five years.
The buoyant demand for the Vans brand included a surge of 39 percent in European sales, compared with increases of 22 percent in the Americas and 23 percent in Asia-Pacific, all in constant currencies. The Vans brand's sales were up by 28 percent in the quarter in reported terms.
Vans saw its own retail sales soar by over 30 percent. The brand is increasingly diversifying its retail approach to respond to regional and even local market demand. But its wholesale business remains robust as well, up by 19 percent for the quarter in constant currencies.
The VF group's management said in a conference call with analysts that the rising demand for Vans was spread across classics and new categories. Iconic products such as the black and white checkerboard designs saw their sales more than double for the quarter, but the brand also met strong demand with the launch of the Ultra range franchise, which commands higher than average selling prices. Vans also launched its Customs 2.0 platform in Europe, to push its digital sales in the region.
VF predicts sales growth of about 15 percent for the Vans brand this year, up from a prior forecast at the high end of the low double-digit range, and a strong growth trajectory for 2018. It acknowledges that the comparison with this year will be tough but adds that Vans has been growing at a mid-teen rate for the last six years.
Sales of The North Face were down by 3 percent for the quarter, which was chiefly attributed to a shift in the timing of orders for the outdoor brand, while sales were up by 3 percent on a more normalized basis, as VF put it.
TNF's reported sales were up by 17 percent in Europe, including mid-teen growth in its wholesale business and high-teen growth in own retail sales, including a surge of more than 50 percent in digital sales. TNF saw double-digit growth across all major product categories in Europe, with particularly strong sell-through of the urban exploration range. Due to the brand's ongoing momentum in Europe, VF predicts that growth will accelerate further in the fourth quarter and next year.
TNF's turnover was off by 10 percent in the Americas for the quarter but the dip would have been reduced to 1 percent without the timing shift. Its Asian sales returned to growth with a sales increase of 4 percent. VF's guidance for the brand for the full year is unchanged, with sales predicted to grow at the high end of the mid-single-digit range.
The Timberland brand's sales were off by 2 percent for the quarter, but again this was due to the shift in timing, which reduced sales by 5 percent for the three months. Timberland's sales dipped by 7 percent in the Americas and 5 percent in Asia, while they increased by 3 percent in Europe. The group says its diversification strategy for Timberland is continuing to take hold. The brand's Sensor Flex and Aero Core platforms met strong demand, as well as women's products.
VF's whole outdoor and action sports division's sales jumped by 7.6 percent to $2,502.6 billion, with a rise of 6 percent in constant currencies. Operating profit in the division was up by 6.8 percent to $524.5 million, an increase of 11 percent in constant currencies. The VF group raised its forecast for sales of the division to about 7 percent for the full year, against an earlier projection of about 5 percent.
The entire VF group saw its quarterly sales from continuing operations rise by 5 percent to $3,481.2 billion, up by 4 percent in constant currencies, despite a flat turnover in the U.S. market. The group said the underlying growth rate was probably about 7 percent excluding the shift in the timing of orders. The rise was driven by outdoor and action sports and workwear, while jeans sales slipped by 1 percent in constant currencies.
VF's gross margin from continuing operations was up by 1.0 percentage point to 50.1 percent but the adjusted operating margin was down by 1.4 percentage points to 16.9 percent, with an adverse impact of 0.8 percentage points from exchange rate changes. Earnings per share on an adjusted basis increased by 6 percent to $1.23, comfortably above average analyst estimates, and they were up by 10 percent excluding exchange rate changes.
The adjusted amounts exclude a non-cash impairment charge of $105 million relating to the Nautica brand, and $5 million relating to the costs of the acquisition of Williamson-Dickie.
The upgraded guidance is that sales should rise by 6 percent to $12.1 billion, up by 5.5 percent in constant currencies, compared with the earlier forecast of a 4.5 percent rise in constant currencies. Both estimates include a contribution of about $200 from Williamson-Dickie.
The gross margin is predicted to reach nearly 50 percent, with an adjusted operating margin of about 13.4 percent, down 0.3 percentage points from the previous forecast, most of that coming from the Williamson-Dickie deal.
Adjusted earnings per share from continuing operations are projected to increase by 1 percent to $3.01, up by 6 percent in constant currencies. This includes an impact of $0.5 per share from the extra investments of $25 million, on top of the impact of $0.8 per share from the $40 million investment announced in July.
The discontinued operations include the Licensed Sports Group business, which was divested in April. VF previously sold its contemporary brands business in August last year.