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V.F. Corp. (VFC) Misses Q3 Earnings & Sales, Trims View

V.F. CorporationVFC released third-quarter 2016 results, wherein the company's quarterly adjusted earnings came in at $1.14 a share, missing the Zacks Consensus Estimate of $1.15, but up 6.5% year over year. Including one-time items, earnings rose 11% to $1.19 per share. On a currency neutral basis, the bottom line surged 16%.

Net sales of $3,457.6 million fell 1% year over year and lagged the Zacks Consensus Estimate of $3,663.5 million. The decline was mainly attributed to lower revenues at the company's Jeanswear, Sportswear and Imagewear segments, partially mitigated by improvement at its Outdoor & Action Sports segment. Total revenue, including royalty income came in at $3,488.2 million, down 1% year over year.

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The company's reported gross margin improved 70 basis points (bps) to 48.4%, as gains from better pricing, reduced product costs and favorable mix were somewhat countered by foreign currency headwinds and inventory management. Foreign currency hurt reported gross margin by 60 bps.

Operating income dropped 1% to $635 million, whereas operating margin expanded 10 basis points to 18.2%. Currency headwinds affected operating margin by 40 bps.

Segment Details

Revenues at Outdoor & Action Sports inched up 2% to $2,336 million (on a currency neutral basis as well). The upside was driven by 7% growth in the Vans brand, partly neutralized by a 1% decline in the North Face brand and flat Timberland revenues.

Jeanswear revenues of $701.4 million declined 6% year over year (down 4% on a currency neutral basis), due to 6% decline at both Wrangler and Lee brands. Additionally, the results were hurt by unfavorable weather conditions in September, soft consumer demand and shifts in the delivery of orders.

Imagewear revenues fell 3% (down 4% on a currency neutral basis) to $281.5 million, driven by a high single-digit fall in the workwear business, somewhat offset by a low single-digit percentage growth at the Licensed Sports Group operations.

Revenues at Sportswear plunged 13% (on a currency neutral basis as well) to $140.7 million, owing to a sharp decline of 15% in Nautica, coupled with a 6% slump in the Kipling brand revenue.

The company's International revenues rose 5% year over year and grew 6% on a currency neutral basis. On a reported basis, international revenues accounted for 41% of the company's total revenue, compared with 38% in the year-ago period. Revenues in Europe increased 6% on a currency neutral basis (up 7% on a reported basis) and revenues in the Asia-Pacific region improved 4% on a currency neutral basis (up 2% on a reported basis). Revenues in the Americas (non-U.S.) region advanced 9% on a currency neutral basis (up 3% on a reported basis).

Direct-to-Consumer revenues escalated 6% year over year. The company's eCommerce revenue grew 18% in the quarter, exhibiting its continued strength. As of the end of the second quarter, V.F. Corp. owned 1,475 retail outlets. Overall, direct-to-consumer revenues contributed 23% to V.F. Corp.'s third-quarter revenues, compared to 21% in the same period last year.

Financial Details

V.F. Corp. ended the quarter with cash and equivalents of $737.8 million, long-term debt of $2,347.1 million and shareholders' equity of $4,872.8 million. For the nine months of 2016, the company generated nearly $43.4 million worth of cash flow from operating activities.

Further, the company repurchased 2.7 million shares worth $166 million during the third quarter. So far in 2016, the company has repurchased 16 million shares for nearly $1 billion. V.F. Corp. has about 15 million shares remaining under its current authorization.

Additionally, V.F. Corp. raised its quarterly cash dividend by 14% to 42 cents per share. The increased dividend is payable on Dec 19, 2016, to shareholders on record as of Dec 9.

Other Developments

On Aug 26, the company divested its Contemporary Brands businesses to Delta Galil Industries, Ltd. The sale included the company's 7 For All Mankind, Splendid and Ella Moss brands. The results of this business are therefore written as discontinued operations in the third quarter.

Outlook

Following its third-quarter results, the company trimmed its outlook for 2016. Management now anticipates 2016 revenues to grow 2%, compared with a 3−4% growth projected earlier.

V.F. Corp. anticipates gross margin expansion of 50 bps to 48.7%, including negative currency impact of roughly 70 bps.

Further, the company still envisions earnings per share from continuing operations to increase 11% on a currency neutral basis and 5% on a reported basis, to $3.20 per share. However, reported earnings per share is now expected to rise 3% to $3.13 (up 7% on currency neutral basis), compared with the previous forecast of 5% growth to $3.20 per share (11% currency-neutral growth).

Effective tax rate is anticipated to be 20%. The company reiterated its cash flow from operations guidance of approximately $1.3 billion for 2016.

V F CORP Price, Consensus and EPS Surprise

V F CORP Price, Consensus and EPS Surprise | V F CORP Quote

Zacks Rank

V.F. Corp. currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Guess' Inc. GES , Duluth Holdings Inc. DLTH and Tailored Brands Inc. TLRD , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Guess' has an average earnings beat of 36.7% in the last four quarters and has a long-term earnings growth rate of 16.3%.

Duluth Holdings, with a long-term earnings growth rate of 25%, has surged nearly 81.6% year to date.

Tailored Brands has gained nearly 21% year to date. Moreover, it has a long-term earnings growth rate of 17.5%.

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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 Nasdaq, Inc.


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

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