V.F. Corp. Beats on Q2 Earnings as Sales Rise, Upholds View - Analyst Blog

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V.F. Corporation ( VFC ) posted second-quarter 2014 earnings of 36 cents a share, up over 16% year over year and a penny ahead of the Zacks Consensus Estimate. The bottom line benefited from consistently good performance at the company's Outdoor & Action Sports, international and Direct-to-Consumer businesses.

V F Corporation - Quarterly EPS (BNRI) | FindTheBest

Quarter in Detail

V.F. Corp.'s total revenue of $2,402.1 million grew 8% year over year on the back of double-digit revenue growth at its Outdoor & Action Sports, international as well as direct-to-consumer businesses. With this, reported sales surpassed the Zacks Consensus Estimate of $2,365 million.

The company's gross margin in the quarter contracted 10 basis points (bps) to 48.4% as the benefit from a mix shift to higher-margin businesses were more than offset by the negative impact of foreign currency translations.

Operating income rose 9% to $219.8 million, on a year-over-year basis. Moreover, adjusted operating margin expanded 10 bps to 9.2% during the quarter as the effect of lower gross margin was more than offset by improved selling, general & administrative expenses as a percentage of revenues.

Segment Details

Revenue at Outdoor & Action Sports rose 16% from the year-ago quarter to $1,279.1 million, driven by double-digit growth witnessed in international and U.S. markets as well as direct-to-consumer and wholesale networks.

The increased revenues could be attributed to a respective 11%, 21% and 19% increase in sales in North Face, Vans and Timberland brands. Segment operating income increased 30% year over year to $130.7 million, while operating margin expanded 110 bps to 10.2%.

Jeanswear revenues inched down 1% year over year to $605.8 million. The dismal performance at the segment was due to a low single-digit percentage decline in the Americas region, partly offset by a mid-teen percentage increase in Europe and a low-single-digit percentage rise in Asia Pacific.

Moreover, segment revenue suffered due to a 7% decline at the Lee brand. Segment operating income dipped 8% to $100.1 million while operating margin contracted 130 bps to 16.5% in the quarter.

Imagewear revenues increased 3% year over year to $250.0 million on the back of strong Image and Licensed Sports Group revenues. Operating income increased 1% to $35.3 million. However, operating margin at the segment contracted 40 bps to 14.1%.

Revenues at Sportswear increased 5% to $140.1 million owing to strong performance at the Kipling brand that delivered high-teens percentage increase in the U.S. and 27% growth worldwide. On the other hand, the Nautica brand improved 2% in the quarter. However, segment operating income decreased 37% year over year to $10.3 million. Operating margin came in at 7.3%, contracting 490 bps year over year.

Contemporary Brands' revenues slipped 2% to $96.2 million, depicting the challenges faced by the women's premium denim business. However, operating income in the quarter increased 12% to $8.8 million, while operating margin expanded 120 bps to 9.2%.

The company's International revenues escalated 14% year over year. The growth was largely driven by strong performances at almost all brands in Europe (up 16%), Asia Pacific (up 17%) and Americas (up 6%). Notably, within the Asia Pacific region the company witnessed strong growth in China, where revenues were up 15%. International revenues represented 36% of V.F. Corp.'s total revenue in the second quarter compared with 34% for the comparable year-ago quarter.

Direct-to-Consumer revenues advanced 18% year over year, primarily driven by double-digit revenue growth in every region across the globe and upside in almost every brand. During the quarter, the company added 41 new stores to its portfolio, including various brands, bringing the store count to 1,299. Overall, direct-to-consumer revenues contributed 26% of V.F. Corp.'s second quarter revenues, higher than 22% in the year-ago quarter.

Financial Details

V.F. Corp. ended the quarter with cash and cash equivalents of $475.9 million and long-term debt of $1,425.1 million. The company's shareholders' equity came in at $5,653.4 million as of Jun 28, 2014.

Moreover, during the first two quarters of 2014, the company generated cash flow from operations of $219.6 million and spent about $95.8 million towards capital expenditure. Inventories improved 6% year over year, indicating the company's emphasis on operational efficacy. Further, the company expects to generate over $1.65 billion from operational activities.

Dividend

On Jul 15, 2014, management announced a quarterly dividend of 26.25 cents per share to be paid on Sep 19, 2014 to stockholders of record as of Sep 9, 2014.

Share Repurchases

During the quarter, V.F. Corp. bought back nearly 2.9 million shares for an aggregate value of $173 million, under the share repurchase authorization approved in Dec 2013. Going forward, the company expects no further share repurchases throughout 2014.

Looking Ahead

The company seems confident about 2014, mainly on the back of its strong brand portfolio. For 2014, it continues to expect an 8% increase in revenues, considering favorable growth in all its coalitions. For the third quarter, the company expects revenue growth similar to the second-quarter level, driven by continued strength at the Outdoor & Action Sports, international and Direct-to-Consumer businesses.

Further, the company retained its gross margin and operating margin forecasts for 2014 at 49% and 15%, respectively.

The company still projects adjusted earnings for 2014 to rise 13% year over year to $3.06 per share. Currently, the Zacks Consensus Estimate for the year stands at $3.09 per share, above the company's guidance.

Other Stocks to Consider

This North Carolina-based retailer currently holds a Zacks Rank #2 (Hold). Some better-ranked stocks in the textile-apparel industry include Hanesbrands Inc. ( HBI ), Michael Kors Holdings Ltd. ( KORS ) and Vince Holding Corp. ( VNCE ), all of which carry a Zacks Rank #1 (Strong Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: VFC , HBI , KORS , VNCE

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