) reported third-quarter 2012 adjusted earnings of $3.52 per
share, speeding ahead of the prior-year period earnings of $2.87
and Zacks Consensus Estimate of $3.49. The year-over-year
increase was primarily driven a strong top-line growth along with
Quarter in Detail
V.F. Corp.'s third-quarter revenue of $3,119.6 million fell
short of the Zacks Consensus Estimate of $3,172 million. Revenues
grew 14% compared with the year-ago period, on the back of robust
growth in Outdoor & Action Sports, international and
direct-to-consumer revenues. However, the sale of John Varvatos
in April 2012 had a slightly negative impact on revenues.
Gross margin in the quarter spiked 140 basis points to 46.7%
from 45.3% in the year-ago quarter, resulting from improvement in
higher margin businesses. Moreover, adjusted operating margin
expanded 90 basis points to 17.5%, reflecting higher gross
Outdoor & Action Sports
jumped nearly 29% from the year-ago quarter to $1,852.3 million,
of which Timberland and Smartwool brands contributed $499.0
million. Business operations from Americas and Asia contributed
to the revenue increases, which were partially offset by a
decline in European operations. Segment operating income
(excluding Timberland) increased 16% year over year, while
operating margin expanded 220 basis points to 25.7%.
revenue inched down 1% to $718.8 million. The year-over-year
double-digit growth at the U.S., Latin and Central America and
Asian businesses were more than offset by a decline in revenues
in Europe. However, the company witnessed significant growth in
the segment's operating income and margin, mainly on improved
gross margin that came from lower product costs and better
profitability in European Jeanswear.
revenue climbed 3% in the quarter to $284.5 million. However,
operating income and margin at the segment slumped due to high
edged up 2% to $154.2 million driven by increased Nautica and
Kipling brands revenues. Segment operating income was slightly
up, while operating margin remained flat year over year.
revenue slumped 17% to $104.2 million due to the sale of John
Varvatos. However, operating income surged 66% during the
quarter, while adjusted operating margin expanded 540 basis
points to 12.9%.
revenues increased 28%, contributing about 40% to total revenue.
The growth was largely driven by strength across the biggest
brands in Asia and Europe. Additionally, Timberland contributed
20 percentage points to this growth.
revenue increased 28%, driven by the addition of 42 new stores
and a 19 percentage points growth contribution from Timberland.
The company's total owned retail stores were 1,101 at the end of
third-quarter 2012. Direct-to-consumer revenues reached 18% of
VF's total revenues.
V.F. Corp. ended the third quarter with cash and cash
equivalents of $304.6 million and long-term debt of $1,429.8
million. The company's shareholder equity came in at $4,926.8
million at the end of the third quarter of 2012.
The board of directors of V.F. Corp. declared a quarterly cash
dividend of 87 cents per share reflecting an increase of 15 cents
from the previous quarter. This marks the company's 40
consecutive year of dividend hike and will be paid on December
20, 2012 to shareholders of record as of December 10, 2012.
Looking into 2012
Given the solid third-quarter results, the company raised its
earnings forecast for fiscal 2012 by 10 cents per share to $9.60
per share, while it had earlier forecasted earnings of $9.50 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
The company maintains its cash flow projection of a record
$1.2 billion in fiscal 2012, mainly driven by strong working
In addition, the company provided its outlook for the fourth
quarter. V.F. Corp. expects its revenue to increase by 7% year
over year on a constant currency basis. Moreover, adjusted
earnings are anticipated to be more than 30% from the year-ago
We remain impressed with the company's consistent positive
earnings surprise trend, strong organic revenue growth, as well
as the raised management guidance. However, stiff competition
from private label brands and currency fluctuation still remain
causes of concern, thus keeping us on the sidelines.
As one of the world's largest apparel companies with over 30
brands, V. F. Corp is well positioned to generate above-average
industry growth and sustain itself in the current challenging
However, skepticism remains since the company derives about
40% of its sales from international business, which exposes it to
risks of foreign laws and regulations that could negatively
affect operations; foreign consumer preferences, disruptions or
delays in shipments and currency fluctuations.
V. F. Corp, which faces stiff competition from well
established apparel industry players like
Polo Ralph Lauren Corp.
Sears Holdings Corp.
The Gap Inc.
), carries a Zacks #2 Rank, implying a short-term Buy rating.
However, we retain our long-term 'Neutral' recommendation on the
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