VFC VF Corporation

V.F. Corporation (VFC) reported first-quarter 2011 adjusted earnings of $1.71 per share, striding ahead of the Zacks Consensus Estimate by 11 cents. Results also surpassed $1.44 earned in the prior-year quarter by almost 18.8%.

Including benefits from tax settlement and change in inventory accounting of 7 cents and 4 cents per share, respectively, earnings per share for the quarter came in at $1.82.

Operational Performance

V.F. Corp.'s revenue of $1,958.8 million in the first quarter exceeded the Zacks Consensus Estimate of $1,909.0 million. Revenues eclipsed the year-ago figure by 11.9%. Double-digit revenue growth at Outdoor & Action Sports and Imagewear coupled with single-digit growth at Jeanswear, Sportswear and Contemporary Brands led to the overall climb.

Costs and operating expenses, on a year-over-year basis, increased 10.3% in the first quarter. Gross margins in the first quarter reached a record 47.2%, up from a previous high of 46.7% in the year-ago quarter.

Operating income increased robustly by 23.0% year over year to reach $274.6 million in the quarter. Operating margin in the quarter expanded 120 basis points to 14.0%.

Segment Performance

Revenue at Outdoor & Action Sports increased 16.2% year over year in the quarter to $788.2 million. Business from both the Americas and beyond contributed to the revenue increase. First-quarter operating income came in at $143.9 million, up from $127.0 million in the year-ago quarter.

Jeanswear revenue increased 9.2% to $679.2 million in the relevant quarter. Operating income in the quarter increased to $123.1 million from $106.8 million in the year-ago quarter.

Imagewear revenue increased 11.5% in the quarter to $546.8 million. First-quarter operating income was $36.9 million, up from $22.8 million in the year-ago quarter.

Revenue at Sportswear improved 9.5% in the quarter to $111.9 million.  Operating income in the quarter increased to $7.4 million from $7.2 million in the year-ago quarter.

Contemporary Brands experienced a 7.5% increase in revenue in the quarter to $111.9 million. Operating income was $9.7 million in the quarter compared with $8.5 million in the year-ago quarter.

During the quarter under review, international revenues increased 20.0% largely driven by strong growth in Outdoor & Action Sports, Jeanswear and Contemporary Brands businesses and strength across the biggest brands in Asia. India recorded a robust 80.0% increase in revenue driving total revenue growth of 52.0% in Asia.

Direct-to-consumer revenue increased 10% in the quarter, driven by new store openings, comparable store growth and 31.0% jump in e-commerce revenue. The company opened 15 stores across diverse brands in the quarter, bringing the total number of owned retail stores to 788 at the end of first-quarter 2011.

Balance Sheet

V.F. Corp. ended first-quarter 2011 with cash and cash equivalents of $673.0 million. Long-term debt totaled $935.2 million, slightly lower than $937.8 million at the end of the prior-year quarter.

Dividend and Share Repurchase

The board of directors of V.F. Corp. declared a quarterly cash dividend of 63 cents a share. The dividend will be paid on June 20, 2011 to shareholders of record as of June 10, 2011.

Looking into 2011

V.F. Corp. has raised its revenue guidance for fiscal 2011. The company now expects total revenue to grow by approximately 10.0% due to expectation of dollar weakening against other currency. The company had earlier expected a revenue growth of 8.0% to 9.0%.

The company has also raised its earnings guidance to $7.25 per share from earlier announcement of $7.00 to $7.10 per share.

Our Take

We expect V.F. Corp. to continue to deliver 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.

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 #2 Rank, which translates to a short-term Buy rating. However, we maintain a long-term Outperform recommendation on the stock.

 
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