UPDATE: VF Corp 1Q Profit Up 23%, Cotton Costs Cloud Results

VF Corp.'s (VFC) first-quarter earnings rose 23%, with all segments posting increased sales, but concerns about cotton costs overshadowed the Lee and Wrangler jeans maker's report.

The Greensboro, N.C., company raised full-year earnings expectations, but company executives spoke on a conference call about how the second half of the year in particular will be challenging as price increases become steeper due to higher cotton costs.

Higher ticket prices "are just beginning to take effect at retail, and there's more to come," Chief Executive Eric Wiseman said. "It's still largely unknown just how consumers will respond to the additional price increases that go into effect later in the year."

VF is in a particular bind because so much of its merchandise is made with cotton, from its large stable of jeanswear to its North Face outerwear and Vans sneakers. The company sells the merchandise through its own stores and those of other retailers.

The price of cotton has risen 84% from a year ago, when many retailers were placing their orders. VF, like other retailers, has been testing higher prices in anticipation of greater hikes as the year progresses. Chief Financial Officer Robert Shearer said consumer response has been "as planned, if not better than planned" in the case of jeans, giving the company a bit of confidence as it proceeds.

Shearer also sounded cautious about the current quarter, calling it "the most challenged earnings comparison of the year." The period traditionally sees the lowest revenue of the year, Shearer said, and the company already plans to increase spending in areas including technology.

The outlook cast a cloud over first-quarter results and had shares recently trading down 6% to $102.15.

For the first quarter, VF reported particular strength in its outdoor and action sports products division, and the company continued its considerable international growth.

For the first quarter, VF reported a profit of $200.7 million, or $1.82 a share, up from $163.5 million, or 1.46, a year earlier. The most-recent quarter included a tax-settlement gain of 7 cents a share.

Revenue rose 12% to $1.96 billion. Analysts polled by Thomson Reuters had forecast earnings of $1.61 a share on revenue of $1.91 billion.

Gross margin rose to 47.2% from 46.7%.

Sales at the outdoor and action sports products segment rose 16%, while international business rose 20%. Jeanswear sales rose 9%.

Imagewear revenues rose 12%, reflecting strong gains in its uniform and licensed sports businesses.

Sportswear sales increased 10% and contemporary brands revenue was up 8%.

The company raised its full-year earnings estimate to $7.25 a share on 10% revenue growth. Its February forecast was for earnings of $7 to $7.10 a share on revenue growth of 8% to 9%.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

--Melodie Warner contributed to this article

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