V.F. Corporation
(
VFC
) reported second-quarter 2012 adjusted earnings of $1.11 per
share, speeding ahead of the Zacks Consensus Estimate of 94 cents.
However, the result dipped 5% from adjusted earnings of $1.17 per
share earned in the prior-year quarter. The year-over-year decline
was mainly due to a loss of 12 cents at the Timberland operations
as well as a combined 11 cents per share impact from foreign
currency translation and higher pension expense.
Quarter in Detail
V.F. Corp.'s second-quarter revenue of $2,141.8 million fell
short of the Zacks Consensus Estimate of $2,173 million. Revenues
grew 16% compared with the year-ago period, on the back of robust
growth in Outdoor & Action Sports and international revenues.
However, poor weather and the sale of John Varvatos in April 2012
had a modest negative impact on revenues.
Costs and operating expenses on a year-over-year basis increased
19.8% in the quarter. Gross margin in the quarter spiked 20 basis
points to 46.1% from 45.9% in the year-ago quarter, resulting from
easing of pressures from higher product costs in the Jeanswear
segment. Adjusted operating margin, on the other hand, contracted
240 basis points to 7.9%, reflecting losses in Timberland as well
as higher pension expenses.
Segment Details
Revenue at
Outdoor & Action Sports
jumped nearly 45% from the year-ago quarter to $1,040.0 million, of
which Timberland and Smartwool brands contributed $239 million.
Business operations from Americas, Europe and Asia contributed to
the revenue increase. Segment operating income (excluding
Timberland) increased 22% year over year, while operating margin
contracted 110 basis points to 13.6%.
Jeanswear
revenue declined 3% to $594.0 million, driven by double-digit
growth at the Western Specialty and Asian businesses and strong
sales of Rock & Republic jeans products. These were more than
offset by a decline in Mass channel revenues, lower revenues of the
Lee brand in the U.S. and soft conditions in Europe. However, the
company witnessed higher-than-expected growth in the segment's
operating income and margin, mainly on improved gross margin that
came from lower manufacturing costs in owned plants and tight
inventory controls.
Imagewear
revenue increased 3% in the quarter to $251.5 million, driven by
increases in both Image and Licensed Sports businesses. Moreover,
operating income and margin at the segment slumped due to high
product costs.
Revenue at
Sportswear
inched down 2% to $117.5 million driven by diminished Nautica brand
revenue, offset in part by robust revenue growth in its Kipling
brand. Segment operating income was flat, while operating
margin expanded 10 basis points to 9.8%.
Contemporary Brands'
revenue slumped 9% to $107.9 million due to the sale of John
Varvatos. Operating income rose 12% during the quarter, registering
a substantial improvement in gross margins, which expanded 200
basis points to 11.1%.
The company's
international
revenues increased 42%, contributing about 33% to total revenue.
The growth was largely driven by strength across the biggest brands
in Asia and Europe. Additionally, Timberland contributed 26
percentage points to this growth.
Direct-to-consumer
revenue increased 37%, driven by the addition of 34 new stores and
a 29 percentage points growth contribution from Timberland. The
company's total owned retail stores were 1,071 at the end of
second-quarter 2012. Direct-to-consumer revenues reached 21% of
VF's total revenues.
Balance Sheet
V.F. Corp. ended the second quarter with cash and cash
equivalents of $330.5 million and long-term debt of $1,830.5
million. The company's shareholder equity came in at $4,524.1
million at the end of the second quarter of 2012.
Dividend
The board of directors of V.F. Corp. declared a quarterly cash
dividend of 72 cents per share. The dividend will be paid on
September 20, 2012 to shareholders of record as of September 10,
2012.
Looking into 2012
Given the solid second-quarter results, the company raised its
earnings forecast for fiscal 2012 by 5 cents per share to $9.50 per
share, while it had earlier forecasted earnings of $9.45 per
share. However, the company retained the expected earnings
contribution from Timberland at $1.10 per share.
The company maintains its revenue projection of an increase of
approximately 15% year over year to $10.9 billion in fiscal 2012.
Timberland is expected to contribute about $1 billion to fiscal
2012 revenue.
The company also raised its cash flow projection to a record
$1.2 billion in fiscal 2012, mainly driven by strong working
capital management.
Our Take
We expect V.F. Corp. to continue delivering on its potential,
given the proven performance across its segments, its focus to
build brand image via incremental marketing spending and its
committed returns to shareholders by virtue of share buybacks and
dividend payouts.
Moreover, we believe that V.F. Corp.'s policy to acquire
businesses providing strategic opportunities and exiting businesses
having lower potential have helped the company to drive growth
while improving profitability.
Based in Greensboro, North Carolina, V.F. Corp. is one of the
world's largest apparel companies. The company, together with its
subsidiaries, engages in the design, manufacture, and marketing of
branded apparel and related products in the United States and
internationally. Major competitors of the company are
Gap Inc.
(
GPS
) and
Sears Holdings Corporation
(
SHLD
).
V.F. Corp. currently retains a Zacks #3 Rank, which translates
to a short-term Hold rating. We maintain a long-term Neutral
recommendation on the stock.
GAP INC (GPS): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis
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V F CORP (VFC): Free Stock Analysis Report
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