- First quarter revenue from
continuing operations decreased 2 percent to $2.6 billion (down 1
percent currency neutral);
- Gross margin from continuing
operations improved 150 basis points (up 190 basis points currency
neutral) to 50.2 percent;
- Outdoor & Action Sports revenue
increased 2 percent (up 4 percent currency neutral); The North
Face® brand revenue increased 6 percent (up 8 percent
currency neutral) and Vans® brand revenue increased 5
percent (up 7 percent currency neutral);
- International revenue increased 2
percent (up 5 percent currency neutral), including 5 percent growth
(10 percent currency neutral) in China;
- Direct-to-consumer revenue increased
6 percent (up 7 percent currency neutral) with digital revenue up
25 percent (up 26 percent currency neutral); and,
- EPS from continuing operations
decreased 8 percent (down 3 percent currency neutral) to 52 cents;
EPS growth was negatively impacted by 8 percentage points due to
lower discrete tax benefits in the first quarter of 2017, compared
with 2016.
VF Corporation (NYSE: VFC) today reported financial results for
its first quarter ended April 1, 2017. All per share amounts are
presented on a diluted basis. This release refers to “reported” and
“currency neutral” amounts, terms that are described under the
heading “Currency Neutral – Excluding the Impact of Foreign
Currency.” Unless otherwise noted, “reported” and “currency
neutral” amounts are the same. This release also refers to
“continuing” and “discontinued” operations amounts, which are
concepts described under the heading “Discontinued Operations –
Licensing Business and Contemporary Brands.” Unless otherwise
noted, results presented are based on continuing operations.
“VF’s first quarter results were right in line with our
expectations. The company’s largest brands and international and
direct-to-consumer platforms performed well, delivering solid
results against a retail backdrop that continues to experience
significant dislocation,” said Steve Rendle, President and Chief
Executive Officer. “Our diversified value-creation model and our
focus on becoming a more agile and consumer-centric organization
position us to accelerate growth through 2017 and execute against
our recently announced 2021 strategic growth plan.”
Currency Neutral – Excluding the Impact of Foreign
Currency
This release refers to “reported” amounts in accordance with
U.S. generally accepted accounting principles (“GAAP”), which
include translation and transactional
impacts from foreign currency exchange rates. This release also
refers to “currency neutral” amounts, which exclude both the impact of translating foreign
currencies into U.S. dollars and the impact of currency rate
changes on foreign currency denominated transactions.
Reconciliations of GAAP measures to currency neutral amounts are
presented in the supplemental financial information included with
this release, which identify and quantify all excluded items, and
provide management’s view of why this information is useful to
investors.
Discontinued Operations – Licensing Business and Contemporary
Brands
On April 4, 2017, the company announced it had reached an
agreement to sell its Licensed Sports Group (“LSG”) business,
including the Majestic® brand, to Fanatics, Inc., subject to
customary closing conditions. The company expects to complete the
sale of its LSG business in the second quarter of 2017. In
conjunction with the LSG divestiture, VF executed its plan to
entirely exit the licensing business, which comprises the LSG and
JanSport® brand collegiate businesses (together, the “Licensing
Business”). Accordingly, the company classified the assets and
liabilities of these businesses as held for sale and included the
results of these businesses in discontinued operations for all
periods presented.
On August 26, 2016, the company completed the sale of its
Contemporary Brands businesses, which included the 7 For All
Mankind®, Splendid® and Ella Moss® brands. Accordingly, the company
has classified the assets and liabilities of the Contemporary
Brands businesses as held for sale as of March 2016 and included
the results of those businesses in discontinued operations for all
periods presented.
The company’s net loss from discontinued operations was $5.5
million in the first quarter of 2017, which includes the estimated
loss on the sale of the Licensing Business, net of the associated
tax impact triggered by the disposition, and the after-tax
operating results of the Licensing Business during the quarter,
including restructuring and other charges related to the decision
to discontinue the business.
Income Statement Review
- Revenue declined 2 percent to
$2.6 billion (down 1 percent currency neutral), however, our key
growth drivers, including our international and direct-to-consumer
platforms, and our Outdoor & Action Sports coalition delivered
stronger results during the quarter.
- Gross margin improved 150 basis
points to 50.2 percent on a reported basis, as benefits from
pricing, lower product costs and a mix-shift toward higher margin
businesses were partially offset by changes in foreign currency.
Changes in foreign currency negatively affected reported gross
margin by 40 basis points during the quarter.
- Operating income on a reported
basis was down 7 percent to $291 million compared to the same
period of 2016. Changes in foreign currency negatively affected
operating profit growth by 5 percentage points during the quarter.
Operating margin on a reported basis decreased 50 basis
points to 11.3 percent. Changes in foreign currency negatively
affected reported operating margin by about 40 basis points in the
quarter.
- Earnings per share on a reported
basis was down 8 percent to $0.52 compared to $0.56 during the same
period last year. Excluding the impact of changes in foreign
currency, first quarter earnings per share was down 3 percent.
Changes in discrete tax benefits negatively affected earnings per
share growth by 8 percentage points during the first quarter.
Balance Sheet and Cash Flow Highlights
Inventories were up 2 percent compared with the same period of
2016. During the first quarter, the company purchased 8.2 million
of its shares for $438 million at an average price of approximately
$53 per share under the company’s share repurchase program
authorized by VF’s Board of Directors in 2013. In March 2017, VF’s
Board of Directors approved a program that authorizes up to $5
billion of share repurchases.
2017 Outlook
The following outlook is presented on a continuing operations
basis and has been updated to exclude the Licensing Business, which
has been presented as discontinued operations for fiscal years 2016
and 2017.
- Revenue is expected to increase
at a low single-digit percentage rate including about a 2
percentage point negative impact from changes in foreign
currency.
- Gross margin is expected to
reach 49.6 percent, a 20 basis point increase over 2016 gross
margin, and includes about a 70 basis point negative impact from
changes in foreign currency.
- Operating margin is expected to
approximate 14 percent, consistent with the 2016 adjusted operating
margin, including about a 60 basis point negative impact from
changes in foreign currency.
- Earnings per share is expected
to be down at a low single-digit percentage rate compared to 2016
adjusted EPS of $2.98 (up at a mid-single-digit percentage rate on
a currency neutral basis).
- Other full year assumptions include an
effective tax rate in the low 20 percent range and cash
flow from operations of about $1.45 billion.
Dividend Declared
VF’s Board of Directors declared a quarterly dividend of $0.42
per share, payable on June 19, 2017 to shareholders of record on
June 9, 2017.
Webcast Information
VF will host its 2017 first quarter conference call beginning at
approximately 8:30 a.m. Eastern Time today. The conference call
will be broadcast live via the internet, accessible at ir.vfc.com.
For those unable to listen to the live broadcast, an archived
version will be available at the same location.
About VF
VF Corporation (NYSE: VFC) outfits consumers around the world
with its diverse portfolio of iconic lifestyle brands, including
Vans®, The North Face®, Timberland®, Wrangler® and Lee®.
Founded in 1899, VF is one of the world’s largest apparel, footwear
and accessories companies with socially and environmentally
responsible operations spanning numerous geographies, product
categories and distribution channels. VF is committed to delivering
innovative products to consumers and creating long-term value for
its customers and shareholders. For more information,
visit www.vfc.com.
Forward-looking Statements
Certain statements included in this release and attachments 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. You can
identify these statements by the fact that they use words such as
“will,” “anticipate,” “estimate,” “expect,” “should,” and “may” and
other words and terms of similar meaning or use of future dates. 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,
but are not limited to: foreign currency fluctuations; the level of
consumer demand for apparel, footwear and accessories; disruption
to VF’s distribution system; VF's reliance on a small number of
large customers; the financial strength of VF's customers;
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 response to changing
fashion trends; increasing pressure on margins; VF's ability to
implement its business strategy; VF's ability to grow its
international and direct-to-consumer businesses; VF’s and its
customers’ and vendors’ ability to maintain the strength and
security of 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; possible goodwill and other asset
impairment; maintenance by VF’s licensees and distributors of the
value of VF’s brands; changes in tax liabilities; legal,
regulatory, political and economic risks; and adverse or unexpected
weather conditions. 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.
VF CORPORATION Condensed
Consolidated Statements of Income (Unaudited) (In
thousands, except per share amounts)
Three Months Ended March
%
Year Ended December
2017 2016 Change
2016 (a)
Net sales $ 2,555,693 $ 2,606,982 (2 %) $ 11,338,479
Royalty income 25,984 27,435 (5
%) 110,103
Total revenues
2,581,677 2,634,417 (2 %) 11,448,582
Costs and operating expenses Cost of goods
sold 1,286,685 1,350,700 (5 %) 5,820,246 Selling, general and
administrative expenses 1,003,518 971,920 3 % 4,143,823 Impairment
- -
*
79,644 Total costs and operating expenses
2,290,203 2,322,620 (1 %) 10,043,713
Operating income 291,474 311,797 (7 %)
1,404,869
Interest, net (20,188 ) (20,020 ) 1 %
(85,546 )
Other (expense) income, net (67 )
1,292 (105 %) 2,001
Income from
continuing operations before income taxes 271,219 293,069 (7 %)
1,321,324
Income taxes 56,540
51,134 11 % 204,588
Income from
continuing operations 214,679 241,935 (11 %) 1,116,736
Income (loss) from discontinued
operations, net of tax
(5,516 ) 18,334
*
(42,630 )
Net income $ 209,163 $ 260,269
(20 %) $ 1,074,106
Earnings per common
share - Basic(b) Continuing operations $ 0.52 $ 0.57 (9
%) $ 2.68 Discontinued operations (0.01 ) 0.04
*
(0.10 )
Total earnings per common share - Basic $
0.51 $ 0.62 (18 %) $ 2.58
Earnings per common share -
Diluted(b) Continuing operations $ 0.52 $ 0.56 (8 %) $
2.65 Discontinued operations (0.01 ) 0.04
*
(0.10 )
Total earnings per common share - Diluted $
0.50 $ 0.61 (18 %) $ 2.54
Weighted average shares
outstanding Basic 411,990 421,748 416,103 Diluted 415,960
429,133 422,081
Cash dividends per common share $
0.42 $ 0.37 14 % $ 1.53 * Calculation not meaningful
Basis of presentation of condensed consolidated financial
statements: VF operates and reports using a 52/53 week fiscal
year ending on the Saturday closest to December 31 of each year.
For presentation purposes herein, all references to periods ended
March 2017, December 2016 and March 2016 relate to the 13-week
fiscal period ended April 1, 2017, the 52-week fiscal period ended
December 31, 2016 and the 13-week fiscal period ended April 2,
2016. (a) The 2016 Condensed Consolidated Statement of Income
reflects discontinued operations of the Licensing Business and
Contemporary Brands businesses. (b)Amounts have been calculated
using unrounded numbers.
VF
CORPORATION Condensed Consolidated Balance Sheets
(Unaudited) (In thousands) March
December March 2017 2016 2016
ASSETS Current assets Cash and equivalents $
604,444 $ 1,227,862 $ 585,365 Accounts receivable, net 1,253,423
1,161,393 1,222,162 Inventories 1,645,484 1,471,300 1,613,756 Other
current assets 352,628 296,698 323,817 Current assets of
discontinued operations 235,066 135,845
227,774 Total current assets 4,091,045 4,293,098 3,972,874
Property, plant and equipment 914,244 926,010 930,145
Intangible assets 1,814,098 1,797,271 1,957,965
Goodwill 1,715,121 1,708,323 1,775,458
Other assets
690,774 929,190 894,019
Other assets of discontinued
operations - 85,395 301,802
Total assets $ 9,225,282 $ 9,739,287 $ 9,832,263
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities Short-term borrowings $ 288,677 $ 26,029 $
1,137,205 Current portion of long-term debt 253,736 253,689 3,489
Accounts payable 438,300 642,970 408,156 Accrued liabilities
833,825
827,507 950,312 Current liabilities of discontinued operations
21,321 35,205 30,305 Total current
liabilities
1,835,859
1,785,400 2,529,467
Long-term debt 2,051,482
2,039,180 1,401,233
Other liabilities
956,789
977,076 1,000,253
Other liabilities of discontinued
operations(a) - (3,290 ) 7,364
Total liabilities 4,844,130 4,798,366 4,938,317
Stockholders' equity 4,381,152 4,940,921
4,893,946
Total liabilities and stockholders'
equity $ 9,225,282 $ 9,739,287 $ 9,832,263
(a) This line contains deferred income tax
balances that reflect VF's consolidated netting by
jurisdiction.
VF CORPORATION Condensed Consolidated
Statements of Cash Flows (Unaudited) (In
thousands) Three Months Ended March 2017
2016 (a)
Operating activities Net income $
209,163 $ 260,269 Depreciation and amortization 66,438 68,030 Other
adjustments (485,763 ) (473,867 ) Cash used by
operating activities (210,162 ) (145,568 )
Investing
activities Capital expenditures (40,856 ) (36,336 ) Software
purchases (20,657 ) (6,335 ) Other, net (6,824 ) (587
) Cash used by investing activities (68,337 ) (43,258 )
Financing activities Net increase in short-term borrowings
262,156 685,985 Payments on long-term debt (904 ) (10,695 )
Purchases of treasury stock (438,297 ) (713,767 ) Cash dividends
paid (172,713 ) (155,584 )
Proceeds from issuance of Common Stock,
net of shares withheld for taxes
3,283 4,102 Cash used by financing
activities (346,475 ) (189,959 )
Effect of foreign
currency rate changes on cash and equivalents 2,228
19,033
Net change in cash, cash
equivalents and restricted cash (622,746 ) (359,752 )
Cash, cash equivalents and restricted cash - beginning of
year (b) 1,231,026 946,396
Cash, cash equivalents and restricted cash - end of
period (b) $ 608,280 $ 586,644
(a
) Reflects the impact of adopting the new
accounting guidance on presentation of restricted cash and
restricted cash equivalents as of the beginning of the first
quarter of 2017, which resulted in an insignificant
reclassification of cash flows used by operating activities in the
Condensed Consolidated Statement of Cash Flows for the three months
ended March 2016. (b) The cash flows related to discontinued
operations have not been segregated, and are included in the
Condensed Consolidated Statements of Cash Flows. The cash amounts
presented above differ from the Condensed Consolidated Balance
Sheets due to cash included in the "Current assets of discontinued
operations" and the adoption of new accounting guidance as
discussed in (a) above.
VF
CORPORATION Supplemental Financial Information
Business Segment Information (Unaudited) (In
thousands)
% Change
Three Months Ended March %
Currency
2017 2016 Change
Neutral*
Coalition revenues Outdoor & Action Sports $
1,678,810 $ 1,639,085 2 % 4 % Jeanswear 647,442 710,590 (9 %) (8 %)
Imagewear 134,966 141,811 (5 %) (5 %) Sportswear 98,317 118,397 (17
%) (17 %) Other 22,142 24,534 (10 %)
(10 %) Total coalition revenues $ 2,581,677 $
2,634,417 (2 %) (1 %)
Coalition profit
Outdoor & Action Sports $ 230,944 $ 228,110 1 % 7 % Jeanswear
118,019 137,294 (14 %) (14 %) Imagewear 24,400 26,139 (7 %) (4 %)
Sportswear (1,069 ) 4,776 (122 %) (122 %) Other (2,195 )
(2,608 ) (16 %) (16 %) Total coalition profit 370,099
393,711 (6 %) (2 %)
Corporate and other expenses
(78,692 ) (80,622 ) (2 %) (2 %)
Interest, net (20,188
) (20,020 ) 1 % 1 %
Income from continuing
operations before income taxes $ 271,219 $ 293,069
(7 %) (3 %) *Refer to currency neutral definition on
the following pages.
VF CORPORATION
Supplemental Financial Information Business Segment
Information – Currency Neutral Basis (Unaudited) (In
thousands) Three Months Ended March 2017
As Reported Adjust for Foreign under GAAP
Currency Exchange Currency Neutral
Coalition revenues Outdoor & Action Sports $ 1,678,810 $
22,949 $ 1,701,759 Jeanswear 647,442 6,774 654,216 Imagewear
134,966 (275 ) 134,691 Sportswear 98,317 - 98,317 Other
22,142 - 22,142 Total
coalition revenues $ 2,581,677 $ 29,448 $ 2,611,125
Coalition profit Outdoor & Action Sports $
230,944 $ 14,024 $ 244,968 Jeanswear 118,019 (513 ) 117,506
Imagewear 24,400 731 25,131 Sportswear (1,069 ) - (1,069 ) Other
(2,195 ) - (2,195 ) Total
coalition profit 370,099 14,242 384,341
Corporate and
other expenses (78,692 ) (370 ) (79,062 )
Interest, net
(20,188 ) - (20,188 )
Income
from continuing operations before income taxes $ 271,219
$ 13,872 $ 285,091
Diluted earnings per share
growth (8 %) 5 % (3 %)
Currency
Neutral Financial Information
VF is a global company that reports
financial information in U.S. dollars in accordance with GAAP.
Foreign currency exchange rate fluctuations affect the amounts
reported by VF from translating its foreign revenues and expenses
into U.S. dollars, and from entering foreign currency transactions.
These rate fluctuations can have a significant effect on reported
operating results. As a supplement to our reported operating
results, we present currency neutral financial information, which
is a non-GAAP financial measure that excludes the incremental
current year impact of foreign currency exchange. We use currency
neutral information to provide a framework to assess how our
business performed excluding the effects of changes in the rates
used to calculate foreign currency translation, and transaction
gains and losses. Management believes this information is useful to
investors to facilitate comparison of operating results and better
identify trends in our businesses.
To calculate foreign currency translation
on a currency neutral basis, operating results for the current year
period for entities reporting in currencies other than the U.S.
dollar are translated into U.S. dollars at the average exchange
rates in effect during the comparable period of the prior year
(rather than the actual exchange rates in effect during the current
year period). Similarly, transaction gains and losses on a currency
neutral basis are calculated using exchange rates from the
comparable period of the prior year.
These currency neutral performance
measures should be viewed in addition to, and not in lieu of or
superior to, our operating performance measures calculated in
accordance with GAAP. The currency neutral information presented
may not be comparable to similarly titled measures reported by
other companies.
VF CORPORATION
Supplemental Financial Information GAAP Continuing
Operations EPS to Non-GAAP Continuing Operations EPS
(Unaudited) (In thousands)
Twelve Months Ended
December
Three Months Ended March
2016 2017
Diluted earnings per share from continuing
operations, as reported under GAAP
$2.65 $0.52 Adjusted amounts (a) $0.33 $0.00 Diluted
earnings per share from continuing operations - adjusted $2.98
$0.52 Contribution from Licensing Business (b) $0.13 $0.03
Adjusted diluted earnings per share from continuing
operations including contribution from Licensing Business $3.11
$0.55
Twelve Months Ended
December
2017
Full Year Outlook
2016
Low
High
Diluted earnings per share from continuing
operations, as reported under GAAP
$2.65 Adjusted amounts (a) $0.33
Diluted earnings per share from continuing operations - adjusted
$2.98 $2.89 $2.94 % growth (3%) (1%)
% growth currency neutral (c)
4% 6% Contribution from Licensing Business (b) $0.13 $0.12
$0.13 Adjusted diluted earnings
per share from continuing operations including contribution from
Licensing Business $3.11 $3.01 $3.07 % growth (3%) (1%)
% growth currency neutral (c)
4% 6%
Non-GAAP Financial Information
The financial information above has been
presented on a GAAP basis and on an adjusted basis, which is
described below in (a) and (b). Management believes these measures
provide investors with useful supplemental information regarding
VF's underlying business trends and the performance of VF's ongoing
operations and are useful for period-over-period comparisons of
such operations.
While management believes that these
non-GAAP financial measures are useful in evaluating the business,
this information should be considered as supplemental in nature and
should be viewed in addition to, and not in lieu of or superior to,
VF's operating performance measures calculated in accordance with
GAAP. In addition, these non-GAAP financial measures may not be the
same as similarly titled measures presented by other companies.
(a) Adjusted amounts in 2016 represent restructuring charges
of $58.1 million (net of $14.4 million tax), goodwill and
intangible asset impairment charges of $79.6 million (net of $15.5
million tax) and a pension settlement charge of $50.9 million (net
of $19.5 million tax). The EPS impact was calculated using
422,081,000 weighted average common shares. Excluding these
charges, adjusted operating income from continuing operations in
2016 was $1.6 billion. Adjusted operating margin from continuing
operations in 2016 was 14%. (b) In the first quarter of
2017, the Licensing Business met the criteria for discontinued
operations reporting and VF recognized the resulting impairment and
restructuring charges. These adjusted amounts represent the results
of our Licensing Business as if the business was not reported as
discontinued operations and excludes the charges recognized. The
per share amounts for 2016 and the first quarter of 2017 were
calculated using weighted average common shares of 422,081,000 and
415,960,000, respectively. Following is the reconciliation of
diluted earnings per share from discontinued operations to the
adjusted amounts: Twelve Months Ended Three Months Ended
December 2016 March 2017 Diluted loss per share from discontinued
operations, as reported under GAAP $ (0.10 ) $ (0.01 ) Diluted loss
per share related to discontinued operations of Contemporary Brands
in 2016 0.23 - Diluted per share impact of charges resulting from
meeting the discontinued operations criteria in 2017 -
0.04
Diluted per share contribution from
Licensing Business reported in discontinued operations
$ 0.13 $ 0.03 (c) Refer to currency
neutral definition on previous pages.
VF CORPORATION Supplemental
Financial Information Top 5 Brand Revenue Information
(Unaudited) Three Months Ended March 2017
Americas EMEA
APAC Global Top 5 Brand Revenue Growth
Vans®
% change
5% (2%) 19% 5% % change currency neutral 6% 1% 21% 7%
The
North Face®
% change
4% 15% (4%) 6% % change currency neutral 4% 19% (1%) 8%
Timberland®
% change
(7%) (2%) (5%) (5%) % change currency neutral (7%) 0% (5%) (4%)
Wrangler®
% change
(11%) (3%) (3%) (10%) % change currency neutral (11%) (1%) (3%)
(9%)
Lee®
% change
(11%) 0% (4%) (7%) % change currency neutral (11%) 3% 1% (6%)
Refer to currency neutral definition on previous pages.
VF CORPORATION Supplemental
Financial Information Geographic and Channel Revenue
Information (Unaudited) Three Months Ended
March 2017
% Change
Geographic
Revenue Growth
%
Currency
Change
Neutral
U.S. (5%) (5%) EMEA 2% 5% APAC
2% 4% China 5% 10% Americas (non-U.S.) 6% 8%
International 2% 5% Three
Months Ended March 2017
% Change
Channel Revenue
Growth
%
Currency
Change
Neutral
Wholesale (5%) (4%)
Direct-to-Consumer 6% 7% As
of March
DTC Store
Count
2016 2017 Total 1,431
1,511 Refer to currency neutral definition on
previous pages.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170428005058/en/
VF CorporationJoe Alkire, 336-424-7711VP, Investor Relations and
Financial Planning & AnalysisorCraig Hodges, 336-424-5636Senior
Director, Corporate Communications
VF (NYSE:VFC)
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