Thanks to a better-than-expected performance posted by Vans and The North Face, VF saw its reported revenues improve by 6 percent to $2,271 million for the fiscal first quarter ended on June 30. Adjusted to exclude the spin-off of its lower-margin Kontoor jeans business, the acquisition of Altra and Icebreaker, the group's revenues grew by 9 percent from the year-ago quarter in reported terms and by 11 percent in constant currencies. This led the group to raise its outlook for the full financial year.
The group's adjusted gross margin climbed by 1.2 percentage points to 54.4 percent during the quarter, driven by a favorable mix and a good timing for hedging gains in foreign currency transactions, while the adjusted operating margin improved by one percentage point to 7.2 percent.
However, VF's net income declined by 69 percent to $49.2 million due to a $48 million loss from discontinued operations. Excluding divestitures, acquisitions and costs related to the move of VF's headquarters to Denver, income from continuing operations went up by 58 percent to $97.2 million.
By channel, international revenues were up by 8 percent overall in constant currencies in the first quarter, including a 5 percent gain in EMEA. Direct-to-consumer (DTC) sales gained 16 percent, including a 29 percent hike in digital sales. Wholesale revenues rose by 8 percent.
In constant currencies, TNF booked an increase of 12 percent in its global sales in the latest quarter, with gains of 10 percent in the Americas, 11 percent in the EMEA region and 20 percent in Asia-Pacific. In Europe, it recorded double-digit growth in Germany, Italy, Spain and France.
TNF saw double-digit growth across the Mountain Lifestyle & Urban Exploration territories of its product range. The brand's DTC revenues improved by 18 percent. Indicating its bullishness about future prospects, the company noted that it is a few months away from the launch of Futurelight, which TNF has described as the world's most advanced breathable-waterproof outerwear technology. It plans to put an additional $20 million into the marketing budget to launch FutureLight in outerwear during the coming autumn season.
As we had previously indicated, VF is now planning to adopt the FutureLight technology for a range of TNF shoes, called Activist, for the spring/summer 2020 season.
As usual, Timberland did not perform as well as the other outdoor brands in terms of sales, which went up by 2 percent on a currency-neutral basis in the quarter. On a regional basis, they rose by 7 percent in the Americas and by 5 percent in Asia-Pacific, but declined by 4 percent in EMEA. VF believes that its initiatives for Timberland are bearing fruit in the U.S., with the return of the brand's classics, but it has yet to translate that success to other markets. Other new initiatives are in the pipeline.
Overall, VF's Outdoor segment grew by 11 percent in constant currencies in the quarter, with three percentage points stemming from acquisitions. In reported terms, the outdoor segment posted an operating loss of $80.2 million in the seasonally small quarter, against a loss of $83.4 million for the year-ago period, on 7 percent higher sales of $610.6 million.
Led by Vans, the group's Active segment saw sales rise by 8 percent to $1,232 million, with an increase of 11 percent on a currency-neutral basis, and its operating profit jumped by 14 percent to $307.5 million.
In constant currencies, Vans' sales grew by 23 percent for the quarter, lifted by a 22 percent increase in the U.S. The brand's sales went up by 15 percent in the EMEA region and by a whopping 33 percent in Asia-Pacific. In particular, Vans' DTC revenues went up globally by 23 percent, lifted by a 39 percent increase in e-commerce. In Europe, they jumped by 25 percent and 60 percent, respectively, but the brand's wholesale revenues grew by only 3 percent.
Predicting that Vans will reach an annual turnover of $4 billion by the end of 2020 and meet its $5 billion target by 2023, the management said the quality of the growth was strong and diverse, as it is seeing the rapid acceleration of the Slip-On franchise complement the continued strength of the Old Skool range.
On the other hand, the group's Work division recorded flat revenues of $422.5 million and its operating profit declined by 4 percent to $47.0 million.
Based on this performance, VF raised its sales guidance for the full year to $11.8 billion, up by 6 percent, against a 4-5 percent increase previously expected, excluding acquisitions or divestitures. The Active segment is seen as growing by 7 to 8 percent, and the Outdoor segment by 5 percent, while Work should grow by 3 to 5 percent. In the Outdoor segment, a low-single-digit gain for Timberland is likely to temper robust growth of 8 to 9 percent at TNF.
Adjusted earnings per share are seen as rising at a faster rate of between 16 and 18 percent in dollars. Sales and earnings will probably grow two percentage points more in terms of local currencies.