- Revenues up 15% to over $1.8 billion, with double-digit revenue growth in every coalition
- EPS increases 17% to record $1.17
- 2011 guidance raised: revenues now expected to rise 12% to 13%; EPS expected to reach approximately $7.50
- Timberland acquisition expected to be completed in third quarter
VF Corporation (NYSE: VFC), a global leader in branded lifestyle apparel, today announced record results for the second quarter of 2011. All per share amounts are presented on a diluted basis.
Second Quarter Results Summary
Revenues rose 15% to $1,840.1 million from $1,594.1 million in 2010. All VF coalitions achieved double-digit revenue increases in the quarter, with the strongest growth in Outdoor & Action Sports, where revenues increased 23%. Jeanswear and Sportswear revenues each grew by 10%, Imagewear revenues rose 16%, and Contemporary Brands revenues were up 11%.
Gross margin declined, as anticipated, to 45.9% from 47.1% in the 2010 period, reflecting the impact of higher product costs. Gross margin in the quarter also included a 65 basis point benefit from the gain on the closure of a European jeanswear facility; this gain was anticipated and reflected in previously provided full year gross margin guidance. Operating margin was 10.3% compared with 10.6% in the 2010 period.
Growth in both net income and earnings per share of 17% was stronger than anticipated. Net income rose to $129.4 million from $110.8 million, while earnings per share increased to $1.17 from $1.00. Earnings per share in the quarter included costs related to the pending acquisition of The Timberland Company of $.02 per share. Two items in the quarter that were anticipated and reflected in previously provided full year guidance were the aforementioned gain from the facility closure that benefited earnings by $.07 per share, and foreign currency translation that benefited earnings by $.03 per share.
First Half Results Summary
Revenues increased 14% to $3,798.9 million from $3,344.0 million in 2010, with strong growth in every coalition.
Net income of $330.1 million represented a 20% increase over the $274.4 million reported in the 2010 period. Earnings per share were $2.99 compared with $2.47, rising 21% in the first half. Earnings per share in the period benefitted by $.11 in special items reported in the first quarter, and by $.04 due to foreign currency translation. Earnings per share also include the aforementioned second quarter items of $.02 in acquisition-related expenses and $.07 benefit from the facility closure.
“With double-digit revenue growth in all coalitions, and in both our international and direct-to-consumer businesses, VF is firing on all cylinders,” said Eric Wiseman, Chairman and Chief Executive Officer. “Our marketing investments continue to fuel outstanding growth, our brands are gaining momentum – and we are confident that this momentum is sustainable.” He continued, “The signing of a definitive merger agreement between VF and The Timberland Company on June 12th marks a transformational acquisition for VF, and will result in a $10 billion apparel and footwear powerhouse anchored in outdoor and action sports. We look forward to completing the acquisition this quarter.”
Second Quarter Business Review
Outdoor & Action Sports: Outdoor & Action Sports achieved record revenues and operating income in the second quarter. Total global revenues in Outdoor & Action Sports rose 23% in the quarter, with Americas revenues rising 14% and international revenues up 42% (29% on a constant currency basis). Nearly all Outdoor & Action Sports brands achieved double-digit growth in the quarter, with the two largest brands – The North Face(R) and Vans(R) – achieving global revenue growth of 21% and 22%, respectively. Our Kipling(R) and Napapijri(R) businesses experienced exceptionally strong growth in the quarter, with revenues up 37% and 46%, respectively. Total direct-to-consumer revenues for Outdoor & Action Sports rose 22% in the quarter, with a 34% increase in The North Face(R)direct-to-consumer revenues and a 19% increase in Vans(R)direct-to-consumer revenues.
Operating income for the coalition rose by 10%. Reflecting a higher percentage of advertising expense to revenues versus the 2010 period, and investments to support the coalition’s seasonally higher second half business, operating margin in the quarter was 12.5% compared with last year’s 13.9%. The full year coalition operating margin is still expected to approximate 20%.
Jeanswear: Jeanswear revenues grew strongly in the quarter, rising 10%. Domestic revenues rose 7% with growth across the Mass Market, Lee and Western businesses. Domestically, the Wrangler(R) and Lee(R) brands continue to gain share within their respective channels, driven by success in new product innovation and superior execution. International jeans revenues increased 20% (11% on a constant currency basis); Asia revenues rose 24%, revenues in Mexico and Latin America each increased by more than 20%, and European revenues were up 13% (flat on a constant currency basis).
Operating income declined only slightly in the quarter, helped by the gain from the jeanswear facility closure. At 15.4% in the quarter, the Jeanswear operating margin remained healthy, though down from the 17.0% achieved in the prior year’s quarter, despite higher product costs.
Imagewear: Imagewear had another exceptionally strong quarter, with revenues and operating income both increasing at double-digit rates. Revenues rose 16% in the second quarter, driven by a 32% revenue increase in our Image (uniform) business, with very strong performance in our Protective Apparel business. Imagewear’s unmatched business model is fueling superior growth this year, and provides it with a competitive advantage that should support its continued momentum.
Operating income rose 55% and operating margin continued to strengthen, to 16.5% from 12.3% in last year’s quarter.
Sportswear: Sportswear revenues rose 10% in the second quarter. The 62% increase in Kipling(R) revenues in the U.S. was the biggest contributor to growth in the quarter, as the brand continued to expand and gain share. Nautica(R) brand revenues rose 6%, with healthy growth in the men’s wholesale sportswear and direct-to-consumer businesses.
Sportswear operating income rose 20% in the quarter. Operating margin expanded to 9.7% from 8.9% in the prior year period.
Contemporary Brands: Revenues of our Contemporary Brands coalition grew 11% in the quarter driven by a 28% increase in the combined revenues of our Splendid(R) and Ella Moss(R) brands and a 36% increase in John Varvatos(R) brand revenues. Global revenues of the 7 For All Mankind(R) brand rose 2%, with domestic revenue growth of 4% in the quarter. New stores, comp store growth and higher e-commerce revenue drove a double-digit increase in global Contemporary Brands’ direct-to-consumer revenues.
Second quarter operating income for the Contemporary Brands coalition increased 30% while operating margin improved to 9.1% from 7.7%.
Expansion in International Revenues
International revenues increased 30% (20% on a constant currency basis) in the quarter, driven by the 42% increase in Outdoor & Action Sports and the 20% increase in Jeanswear international businesses. Revenues in Asia were up 30% in the quarter, with our The North Face(R), Vans(R)and Kipling(R)businesses all growing in excess of 25%. India is a relatively small but rapidly growing market for VF’s brands, with substantial future revenue potential. During the second quarter, revenues in India continued to show great momentum, rising by over 50% in the quarter and nearly 70% year to date.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues grew 17% in the quarter driven by new store openings, a 40%-plus increase in e-commerce revenues, and exceptionally strong comp store growth. The direct-to-consumer businesses of The North Face(R), Vans(R), 7 For All Mankind(R), Napapijri(R) and Kipling(R) brands each achieved solid revenue gains in the period. A total of 29 stores were opened across our brands in the quarter and 44 year-to-date, bringing the total number of owned stores to 808.
2011 Guidance Increased
“We are bullish on the outlook for our brands as we enter the second half of 2011, and are raising our full year revenue and earnings guidance accordingly,” said Mr. Wiseman. “We’re continuing to invest behind our strongest growth platforms, and are tremendously excited about adding a new growth platform, The Timberland Company, to our arsenal. We look forward to welcoming both Timberland(R) and Smartwool(R) to VF’s family of brands.” He noted that the expected accretion to revenues and earnings of $700 million and $.25 per share, respectively, from the pending acquisition is not included in VF’s updated guidance.
Revenues are now expected to rise 12 to 13% in 2011, up from previous guidance of approximately 10%, reflecting broad-based strength across all our businesses. Accordingly, Outdoor & Action Sports revenues should grow at a high-teen percentage rate, Imagewear revenues should grow at a low-teen percentage rate, and Jeanswear, Sportswear, and Contemporary Brands revenues are each expected to rise at high single-digit rates. In addition, based on the strengthening of our businesses in both Europe and Asia, we now anticipate international revenues in 2011 could increase by more than 20%, compared with previous guidance for 15% growth, with revenue growth in Asia now expected to exceed 30%. Growth in our direct-to-consumer business, another revenue driver, should rise by about 15%, better than the 10 to 15% growth in previously provided guidance.
Earnings are now anticipated to increase to approximately $7.50 per share, up from prior guidance for earnings of approximately $7.25 per share, and another strong year of cash flow from operations of $1 billion is anticipated in 2011.
The Board of Directors declared a quarterly cash dividend of $.63 per share, payable on September 19, 2011 to shareholders of record as of the close of business on September 9, 2011.
Statement on Forward Looking Statements
Certain statements included in this release are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements in this release include the overall level of consumer demand for apparel; the level of consumer confidence; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; VF’s reliance on a small number of large customers; the financial strength of VF’s customers; changing fashion trends and consumer demand; increasing pressure on margins; VF’s ability to implement its growth strategy; VF’s ability to grow its international and direct-to-consumer businesses; VF’s ability to successfully integrate and grow acquisitions; VF’s ability to maintain the strength and security of its information technology systems; stability of VF’s manufacturing facilities and foreign suppliers; continued use by VF’s suppliers of ethical business practices; VF’s ability to accurately forecast demand for products; continuity of members of VF’s management; VF’s ability to protect trademarks and other intellectual property rights; maintenance by VF’s licensees and distributors of the value of VF’s brands; foreign currency fluctuations; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF’s financial results is included from time to time in VF’s public reports filed with the Securities and Exchange Commission, including VF’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.