VF Corp. saw consolidated revenues increase by 4.7 percent in the second quarter, or by 10 percent on a currency-neutral basis, reaching €2,513.9 million. The growth was especially driven by its Outdoor & Action Sports coalition, whose sales jumped by 16 percent on a currency-neutral basis, with double-digit increases for almost all of its ten brands. The division's sales rose by 9 percent in reported dollars to $1,396.3 million as compared to the same period last year, and its operating margin fell by 0.5 percentage points to 9.7 percent due to changes in foreign currency rates.
The group's operating income grew by one percent on a reported basis to $223 million. The gross margin was down by 10 basis points to 48.3 percent but the group said this was in line with its expectations, as the continued shift of its revenue mix toward higher-margin businesses was more than offset by the impact of foreign currencies. The operating margin fell by 0.3 percentage points to 8.9 percent. Net income rose by 8.3 percent to $170.8 million.
Within the Outdoor & Action Sports coalition, sales for The North Face brand rose by 10 percent in local currencies and by 6 percent in dollars, with direct-to-consumer (DTC) sales rising by 20 percent in local currencies. E-commerce picked up speed, driven by increased traffic on TNF's website and higher conversion rates, particularly with mobile devices.
On a currency-neutral basis, the geographical spread shows TNF's sales going up in the quarter at a low double-digit rate in the Americas and at a mid-single-digit rate in Europe. Asia-Pacific went up at a low-teen percentage rate.
The management was particularly pleased with the strength of the Mountain Athletics category (see the related story with a European angle in this issue), mentioning great initial results for its new women's line.
Timberland registered 10 percent sales growth on a currency-neutral basis in the quarter, which is relatively small for this brand, and the increase was reduced to 2 percent in reported dollars. Timberland's quarterly sales growth included a 17 percent increase in its wholesale business in constant currencies.
Boots and hikers led the way at Timberland. Geographically, the brand went up in local currencies at a mid-single-digit rate in the Americas, at high single-digit rate in Europe and at a high-teen percentage rate in Asia-Pacific.
Eagle Creek turned out to be the fastest-growing brand in the coalition, rising by 28 percent in the quarter. Kiplng, Napapijri and JanSport also delivered particularly strong results.
Vans' sales increased by 17 percent in reported dollars, or by 23 percent currency-neutral. It was the 23rd consecutive quarter of double-digit growth for the brand. In local currencies, Vans went up by 25 percent in DTC and by 22 percent at the wholesale level. In international markets, its DTC business jumped by 35 percent.
Regionally, Vans grew by more than 20 percent in the Americas and by more than 30 percent in Asia-Pacific. In Europe, the brand rose at a mid-teen percentage rate in local currencies but fell by a mid-single digit in dollars.
The group's consolidated revenues outside the U.S. increased by 13 percent in constant currencies but were down by 1 percent when translated into dollars, accounting for 34 percent of VF's total turnover. In Europe, sales grew by 11 percent currency-neutral, and were down by 8 percent on a reported basis. In the Asia-Pacific region, revenues grew by 17 percent, or 14 percent reported. Finally, the Americas excluding the U.S. registered an 11 percent sales increase, down by 1 percent reported.
DTC accounted for 26 percent of total revenues on a reported basis, the same percentage as last year's second quarter. DTC revenues grew by 13 percent on a currency-neutral basis, or 7 percent in dollars, with growth in all regions and particular strength in Asia-Pacific. The group had 49 new store openings during the second quarter, which brought the total number of VF-owned retail stores around the world to 1,438.
The company's outlook for full-year revenues has remained unchanged, predicting sales increases of 8 percent in constant currencies and 3 percent in dollars. The Outdoor & Action Sports coalition is expected to post a double-digit revenue increase in local currencies, with TNF maintaining its double-digit growth, Timberland rising in the low teens and Vans going up in the mid-teens. The company raised its guidance for net earnings from 14 to 15 percent growth in constant currencies and from 4 to 5 percent in dollars.
Third-quarter revenues are expected to increase at nearly the same pace as in the second quarter, driven by strength from the Outdoor & Action Sports and Jeanswear coalitions, international operations and continued strength in DTC. The gross margin is still expected to go up by 0.7 percentage points on a currency-neutral basis for the year, but foreign currencies will probably limit it to a level of around 49 percent.
The strongest margin and profit comparisons of the year are expected to occur in the fourth quarter, when DTC sales will make the most significant contribution of the year, while product costs should be lower and the negative impact of currencies may lessen.
