Sales of VF Corp.'s outdoor and action sports division, with brands ranging from The North Face to Timberland and Vans, among others, advanced in the first quarter by 2 percent to $1.6 billion, which amounted to a rise of 10 percent in constant currencies.
Quarterly sales for The North Face increased by just 1 percent in dollars but by 7 percent in constant currencies, with a 20 percent jump in own retail sales. The improvement was driven by products such as Thermoball, the FuseForm range and The North Face's athletic mountain range, which is helping to diversify the brand's seasonal offering.
The North Face's sales enjoyed an underlying increase at a mid single-digit percentage rate in the Americas. The brand's turnover jumped at a high single-digit rate in Europe, although this meant a low double-digit decline in reported terms. Its sales were up at a low double-digit percentage rate in constant currencies in the Asia-Pacific region.
Vans lifted its sales by 16 percent in constant currencies for the quarter and by 8 percent in reported terms, with increases in both wholesale and retail sales. The action brand's sales in the Americas region enjoyed an underlying increase at a high-teen percentage rate, while European sales inflated at a mid single-digit rate in constant currencies. This underlying rise turned into a low double-digit sales decline in dollars. Vans remained most buoyant in Asia-Pacific, where its turnover climbed by more than 45 percent in constant currencies.
When it comes to Timberland, the brand's sales were flat in dollars but they grew by 10 percent in constant currencies, with a 16 percent rise in its wholesale business. This wholesale expansion buoyed sales in the Americas, where Timberland's turnover advanced at a high-teen percentage rate. In Europe, the brand enjoyed an underlying sales increase at a low single-digit rate, albeit turning into a mid-teen rate decline in dollars. The Asia-Pacific region delivered a sales increase at a high single-digit rate for the quarter in constant currencies.
Operating income for the outdoor and action sports division advanced by 7 percent in constant currencies but in reported terms it fell by 5.0 percent to $260.8 million. This amounted to an operating margin of 16.2 percent, down by 1.2 percentage points. Apart from the changes in currency exchange rates, VF mentioned more investments in own retailing, with 116 extra stores at the end of the quarter compared with the same time last year.
The entire group's sales reached $2,803 million for the quarter, which was an increase of 2 percent in dollars and 8 percent in constant currencies. This included an increase of 9 percent in international sales, with rises of 4 percent in Europe, 17 percent in Asia-Pacific and 16 percent in the Americas outside of the U.S. Own retail sales jumped by 11 percent in constant currencies. Without changes in exchange rates, the performance for the other categories included an increase of 6 percent for jeans and 3 percent for sportswear, with the Nautica and Kipling brands.
Aided by a cold spring that helped to clean inventories, VF still predicts low double-digit currency-neutral sales expansion for The North Face for the full year. The group forecasts a mid-teens increase for Vans and an unchanged forecast of a low-teen percentage rate increase for Timberland. The entire outdoor and action sports division is still projected to raise its turnover at a low double-digit rate in constant currencies.
The group's gross margin dipped by 0.4 percentage points to 49.0 percent for the quarter, as currency exchange rate changes erased benefits from the continuous improvement in sales mix. VF still predicts that its gross margin will rise by 0.7 percentage points to 49.5 percent for the full year in constant currencies, amounting to 49.2 percent in reported terms.
VF's operating margin dipped by 0.5 percentage points to 14.0 percent. Net income was down by 2.9 percent to $288.7 million and earnings per share were flat in reported terms. They are predicted to increase to $3.20 for the full year, up by 4 percent compared with adjusted earnings per share last year. Without currency exchange rates, earnings per share were up by 13 percent for the quarter and are projected to increase by 14 percent for the year – which is an improvement on the previous forecast of a 12 percent increase.
VF remains bullish about the prospects for its larger sports and outdoor brands, eying sales of $2.3 billion for The North Face in a market estimated at $26 billion for outdoor performance and a turnover of about $2.0 billion for Vans in an action sports market pegged at $29 billion. The outlook for Timberland calls for sales of $1.8 billion in a market valued at $36 billion for outdoor lifestyle products.
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Soaring European sales and record margins for Columbia
Columbia Sportswear's sales soared by 22 percent to $47.8 million in Europe, the Middle East and Africa (EMEA) for the first quarter of this year, confirming a return to expansion in this regional market and contributing to an ample increase in sales and record income for the entire group.
The European sales jump included incremental turnover of $2.0 million from Prana, the yoga and outdoor brand acquired by Columbia Sportswear last May, but the rise would have been more impressive without changes in currency exchange rates, which had a negative impact of about 15 percentage points on its regional sales. The Columbia group's sales in Europe as well as North America were supported by the cold weather that prompted more re-orders.
The entire company's turnover reached $479.0 million for the quarter, which was an increase of 13 percent in reported terms and 17 percent in constant currencies. Prana added $37.1 million to the group's turnover. Columbia brand sales advanced by 7 percent to $401.0 million, while Sorel's turnover improved by 4 percent to $13.4 million. However, Mountain Hardwear's sales retreated by 23 percent to $25.1 million.
Tim Boyle, the company's chief executive officer, hailed the return to expansion in Europe, where Columbia has sealed fresh partnerships with key retailers and enjoyed robust demand for its footwear range. The company's sales were also spurred by outstanding sell-through in North America – for winter products, due to the late start of the season, and for spring sportswear and fishing ranges. This easily made up for more troublesome markets such as Russia and South Korea.
Boyle added that Sorel was poised for a strong second half and the footwear brand's sales could reach more than $200 million for the full year. As for Prana, the brand is still on track to deliver annualized growth of more than 20 percent. Strong wholesale orders in the U.S., expansion in Europe and continued store openings for Columbia and Prana should support the rise of 25 percent in inventories at the end of the quarter, the group said.
The group's sales jumped by 18 percent in the U.S. market to $283.8 million for the quarter, with Prana adding sales of $30.8 million. Sales were up by 28 percent to $34.3 million in Canada, with Prana contributing an added $4.0 million but an unfavorable impact of 12 percent from the dollar exchange rate.
Sales in Latin America and Asia-Pacific dwindled by 3 percent to $113.1 million for the quarter, but this was due to unfavorable exchange rate changes, which had a negative impact of 6 percentage points.
Sales of apparel, accessories and equipment reached $399.3 million, up by 13 percent. The same increase applies for footwear, with sales reaching $79.7 million for the quarter.
The group's gross margin rose by 1.3 percentage points to a record 47.8 percent, on the back of more online sales, the increased weight of Sorel's women's products in the mix, and Prana's increased margins. Operating income for the quarter advanced by 24 percent to $44.1 million. This amounted to an operating margin of 9.2 percent, up by 0.8 percentage points. The group ended the quarter with net income of $26.5 million, which was an increase of 19 percent.
For the full year, the company still predicts high single-digit sales growth, including a negative impact of about 4 percentage points from changes in currency exchange rates. The forecasts have been upgraded for profit margin. The gross margin should move up by about 0.5 percentage points and operating margin is predicted to reach about 10.2 percent for the full year, up from 9.5 percent in 2014. Net income after non-controlling interests is predicted to land between $154 million and $161 million, against $137.2 million in 2014.
Much of the improvement should come in the second half, since the company predicts roughly flat operating margin of 2.5 percent in the first half, due to the seasonally weak sales in the second quarter. Net income for the first half is also expected to drop to between $7 and $10.0 million, compared with $15.9 million in the same half in 2014, partly due to a non-recurrent tax benefit of $5.6 million for the period last year.
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