VF Corporation (NYSE: VFC), a global leader in branded
lifestyle apparel, today announced record results for the second
quarter of 2011. All per share amounts are presented on a diluted
basis.
Second Quarter Results Summary
Revenues rose 15% to $1,840.1 million from $1,594.1
million in 2010. All VF coalitions achieved double-digit revenue
increases in the quarter, with the strongest growth in Outdoor
& Action Sports, where revenues increased 23%. Jeanswear and
Sportswear revenues each grew by 10%, Imagewear revenues rose 16%,
and Contemporary Brands revenues were up 11%.
Gross margin declined, as anticipated, to 45.9% from
47.1% in the 2010 period, reflecting the impact of higher product
costs. Gross margin in the quarter also included a 65 basis point
benefit from the gain on the closure of a European jeanswear
facility; this gain was anticipated and reflected in previously
provided full year gross margin guidance. Operating margin
was 10.3% compared with 10.6% in the 2010 period.
Growth in both net income and earnings per share
of 17% was stronger than anticipated. Net income rose to $129.4
million from $110.8 million, while earnings per share increased to
$1.17 from $1.00. Earnings per share in the quarter included costs
related to the pending acquisition of The Timberland Company of
$.02 per share. Two items in the quarter that were anticipated and
reflected in previously provided full year guidance were the
aforementioned gain from the facility closure that benefited
earnings by $.07 per share, and foreign currency translation that
benefited earnings by $.03 per share.
First Half Results Summary
Revenues increased 14% to $3,798.9 million from $3,344.0
million in 2010, with strong growth in every coalition.
Net income of $330.1 million represented a 20% increase
over the $274.4 million reported in the 2010 period. Earnings
per share were $2.99 compared with $2.47, rising 21% in the
first half. Earnings per share in the period benefitted by $.11 in
special items reported in the first quarter, and by $.04 due to
foreign currency translation. Earnings per share also include the
aforementioned second quarter items of $.02 in acquisition-related
expenses and $.07 benefit from the facility closure.
“With double-digit revenue growth in all coalitions, and in both
our international and direct-to-consumer businesses, VF is firing
on all cylinders,” said Eric Wiseman, Chairman and Chief Executive
Officer. “Our marketing investments continue to fuel outstanding
growth, our brands are gaining momentum – and we are confident that
this momentum is sustainable.” He continued, “The signing of a
definitive merger agreement between VF and The Timberland Company
on June 12th marks a transformational acquisition for VF, and will
result in a $10 billion apparel and footwear powerhouse anchored in
outdoor and action sports. We look forward to completing the
acquisition this quarter.”
Second Quarter Business Review
Outdoor & Action Sports: Outdoor
& Action Sports achieved record revenues and operating income
in the second quarter. Total global revenues in Outdoor &
Action Sports rose 23% in the quarter, with Americas revenues
rising 14% and international revenues up 42% (29% on a constant
currency basis). Nearly all Outdoor & Action Sports brands
achieved double-digit growth in the quarter, with the two largest
brands - The North Face® and Vans® - achieving global revenue
growth of 21% and 22%, respectively. Our Kipling® and Napapijri®
businesses experienced exceptionally strong growth in the quarter,
with revenues up 37% and 46%, respectively. Total
direct-to-consumer revenues for Outdoor & Action Sports rose
22% in the quarter, with a 34% increase in The North Face®
direct-to-consumer revenues and a 19% increase in Vans®
direct-to-consumer revenues.
Operating income for the coalition rose by
10%. Reflecting a higher percentage of advertising expense to
revenues versus the 2010 period, and investments to support the
coalition’s seasonally higher second half business, operating
margin in the quarter was 12.5% compared with last year’s 13.9%.
The full year coalition operating margin is still expected to
approximate 20%.
Jeanswear: Jeanswear revenues grew
strongly in the quarter, rising 10%. Domestic revenues rose 7% with
growth across the Mass Market, Lee and Western businesses.
Domestically, the Wrangler® and Lee® brands continue to gain share
within their respective channels, driven by success in new product
innovation and superior execution. International jeans revenues
increased 20% (11% on a constant currency basis); Asia revenues
rose 24%, revenues in Mexico and Latin America each increased by
more than 20%, and European revenues were up 13% (flat on a
constant currency basis).
Operating income declined only slightly in
the quarter, helped by the gain from the jeanswear facility
closure. At 15.4% in the quarter, the Jeanswear operating margin
remained healthy, though down from the 17.0% achieved in the prior
year’s quarter, despite higher product costs.
Imagewear: Imagewear had another
exceptionally strong quarter, with revenues and operating income
both increasing at double-digit rates. Revenues rose 16% in the
second quarter, driven by a 32% revenue increase in our Image
(uniform) business, with very strong performance in our Protective
Apparel business. Imagewear’s unmatched business model is fueling
superior growth this year, and provides it with a competitive
advantage that should support its continued momentum.
Operating income rose 55% and operating
margin continued to strengthen, to 16.5% from 12.3% in last year’s
quarter.
Sportswear: Sportswear revenues rose
10% in the second quarter. The 62% increase in Kipling® revenues in
the U.S. was the biggest contributor to growth in the quarter, as
the brand continued to expand and gain share. Nautica® brand
revenues rose 6%, with healthy growth in the men’s wholesale
sportswear and direct-to-consumer businesses.
Sportswear operating income rose 20% in the
quarter. Operating margin expanded to 9.7% from 8.9% in the prior
year period.
Contemporary Brands: Revenues of our
Contemporary Brands coalition grew 11% in the quarter driven by a
28% increase in the combined revenues of our Splendid® and Ella
Moss® brands and a 36% increase in John Varvatos® brand revenues.
Global revenues of the 7 For All Mankind® brand rose 2%, with
domestic revenue growth of 4% in the quarter. New stores, comp
store growth and higher e-commerce revenue drove a double-digit
increase in global Contemporary Brands’ direct-to-consumer
revenues.
Second quarter operating income for the
Contemporary Brands coalition increased 30% while operating margin
improved to 9.1% from 7.7%.
Expansion in International Revenues
International revenues increased 30% (20% on a constant currency
basis) in the quarter, driven by the 42% increase in Outdoor &
Action Sports and the 20% increase in Jeanswear international
businesses. Revenues in Asia were up 30% in the quarter, with our
The North Face®, Vans® and Kipling® businesses all growing in
excess of 25%. India is a relatively small but rapidly growing
market for VF’s brands, with substantial future revenue potential.
During the second quarter, revenues in India continued to show
great momentum, rising by over 50% in the quarter and nearly 70%
year to date.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues grew 17% in the quarter driven by
new store openings, a 40%-plus increase in e-commerce revenues, and
exceptionally strong comp store growth. The direct-to-consumer
businesses of The North Face®, Vans®, 7 For All Mankind®,
Napapijri® and Kipling® brands each achieved solid revenue gains in
the period. A total of 29 stores were opened across our brands in
the quarter and 44 year-to-date, bringing the total number of owned
stores to 808.
2011 Guidance Increased
“We are bullish on the outlook for our brands as we enter the
second half of 2011, and are raising our full year revenue and
earnings guidance accordingly,” said Mr. Wiseman. “We’re continuing
to invest behind our strongest growth platforms, and are
tremendously excited about adding a new growth platform, The
Timberland Company, to our arsenal. We look forward to welcoming
both Timberland® and Smartwool® to VF’s family of brands.” He noted
that the expected accretion to revenues and earnings of $700
million and $.25 per share, respectively, from the pending
acquisition is not included in VF’s updated guidance.
Revenues are now expected to rise 12 to 13% in 2011, up from
previous guidance of approximately 10%, reflecting broad-based
strength across all our businesses. Accordingly, Outdoor &
Action Sports revenues should grow at a high-teen percentage rate,
Imagewear revenues should grow at a low-teen percentage rate, and
Jeanswear, Sportswear, and Contemporary Brands revenues are each
expected to rise at high single-digit rates. In addition, based on
the strengthening of our businesses in both Europe and Asia, we now
anticipate international revenues in 2011 could increase by more
than 20%, compared with previous guidance for 15% growth, with
revenue growth in Asia now expected to exceed 30%. Growth in our
direct-to-consumer business, another revenue driver, should rise by
about 15%, better than the 10 to 15% growth in previously provided
guidance.
Earnings are now anticipated to increase to approximately $7.50
per share, up from prior guidance for earnings of approximately
$7.25 per share, and another strong year of cash flow from
operations of $1 billion is anticipated in 2011.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of
$.63 per share, payable on September 19, 2011 to shareholders of
record as of the close of business on September 9, 2011.
Statement on Forward Looking Statements
Certain statements included in this release 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. 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 the
overall level of consumer demand for apparel; the level of consumer
confidence; 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 reliance on a small
number of large customers; the financial strength of VF's
customers; changing fashion trends and consumer demand; increasing
pressure on margins; VF's ability to implement its growth strategy;
VF's ability to grow its international and direct-to-consumer
businesses; VF's ability to successfully integrate and grow
acquisitions; VF's ability to maintain the strength and security of
its 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; maintenance by VF's licensees and distributors of the value
of VF's brands; foreign currency fluctuations; and legal,
regulatory, political and economic risks in international markets.
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.
About VF
VF Corporation is a global leader in branded lifestyle apparel
with more than 30 brands, including Wrangler®, The North Face®,
Lee®, Vans®, Nautica®, 7 For All Mankind®, Eagle Creek®, Eastpak®,
Ella Moss®, JanSport®, John Varvatos®, Kipling®, lucy®, Majestic®,
Napapijri®, Red Kap®, Reef®, Riders® and Splendid®.
Webcast Information
VF will hold its second quarter conference call and webcast
today at 8:30 a.m. ET. Interested parties should call
1-888-551-9020 domestic, or 1-719-457-2652 international, to access
the call. You may also access this call via the Internet at
www.vfc.com. A replay will be available through July 28, 2011 and
can be accessed by dialing 1-877-870-5176 domestic, and
1-858-384-5517 international. The pass code is 2286304. A replay
also can be accessed at the Company’s web site at www.vfc.com.
VF CORPORATION Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended June
Six Months Ended June 2011 2010
2011 2010 Net Sales $ 1,821,218 $
1,576,947 $ 3,758,342 $ 3,307,033
Royalty Income
18,905 17,157 40,580
36,950
Total Revenues 1,840,123
1,594,104 3,798,922 3,343,983
Costs and Operating Expenses
Cost of goods sold 994,591 842,502 2,028,447 1,774,705 Marketing,
administrative and general expenses 656,861
582,078 1,307,161 1,176,494
1,651,452
1,424,580 3,335,608
2,951,199
Operating Income 188,671 169,524
463,314 392,784
Other Income (Expense) Interest
income 1,510 496 2,476 990 Interest expense (15,962 ) (20,494 )
(31,902 ) (40,993 ) Miscellaneous, net (2,735 ) 1,923
(4,666 ) 8,346 (17,187 )
(18,075 ) (34,092 ) (31,657 )
Income Before
Income Taxes 171,484 151,449 429,222 361,127
Income
Taxes 41,917 39,959 98,235
86,178
Net Income 129,567 111,490 330,987 274,949
Net (Income) Loss Attributable to
Noncontrolling Interests
(199 ) (655 ) (916 ) (598 )
Net Income Attributable to VF Corporation $ 129,368 $
110,835 $ 330,071 $ 274,351
Earnings Per Share Attributable to VF Corporation
Common Stockholders
Basic $ 1.19 $ 1.02 $ 3.04 $ 2.50 Diluted 1.17 1.00 2.99 2.47
Weighted Average Common Shares
Outstanding
Basic 109,079 108,957 108,651 109,608 Diluted 110,890 110,479
110,453 111,054
Cash Dividends Per Common
Share $ 0.63 $ 0.60 $ 1.26 $ 1.20
Fiscal Periods: VF operates and reports using a 52/53 week
fiscal year ending on the Saturday closest to December 31 of each
year. Similarly, the fiscal second quarter ends on the Saturday
closest to June 30. For presentation purposes herein, all
references to periods ended June 2011, December 2010 and June 2010
relate to the fiscal periods ended as of July 2, 2011, January 1,
2011 and July 3, 2010, respectively.
VF CORPORATION
Consolidated Balance Sheets (In thousands)
June December June
2011 2010 2010 ASSETS
Current Assets Cash and equivalents $ 611,478 $ 792,239 $
540,191 Accounts receivable, net 889,201 773,083 735,022
Inventories 1,285,950 1,070,694 1,102,180 Other current assets
259,279 190,044 210,735
Total current assets 3,045,908 2,826,060 2,588,128
Property, Plant and Equipment,
net
626,271 602,908 593,465
Intangible Assets 1,555,517
1,490,925 1,496,682
Goodwill 1,194,342 1,166,638
1,335,526
Other Assets 378,408
371,025 307,641 $ 6,800,446 $
6,457,556 $ 6,321,442
LIABILITIES
AND SHAREHOLDERS' EQUITY Current Liabilities
Short-term borrowings $ 42,567 $ 36,576 $ 41,970 Current portion of
long-term debt 2,693 2,737 202,742 Accounts payable 456,114 510,998
427,955 Accrued liabilities 512,540 559,164
438,853 Total current liabilities 1,013,914
1,109,475 1,111,520
Long-term Debt 934,600 935,882
937,150
Other Liabilities 581,394 550,880 624,938
Commitments and Contingencies Stockholders'
Equity Common Stock 109,598 107,938 107,898 Additional paid-in
capital 2,221,135 2,081,367 1,976,515 Accumulated other
comprehensive income (loss) (179,783 ) (268,594 ) (314,793 )
Retained earnings 2,118,343 1,940,508
1,879,305
Total equity attributable to VF
Corporation
4,269,293
3,861,219
3,648,925
Noncontrolling interests
1,245 100 (1,091 ) Total
stockholders' equity 4,270,538 3,861,319
3,647,834 $ 6,800,446 $
6,457,556 $ 6,321,442
VF CORPORATION
Consolidated Statements of Cash Flows (In thousands)
Six Months Ended June
2011 2010 Operating Activities
Net income $ 330,987 $ 274,949 Adjustments to reconcile net income
to cash provided (used) by operating activities: Depreciation
57,091 52,485 Amortization of intangible assets 19,246 19,859 Other
amortization 11,418 7,588 Stock-based compensation 32,977 31,353
Pension funding under expense
22,029 24,190 Other, net 6,523 18,694 Changes in operating assets
and liabilities, net of acquisitions: Accounts receivable (97,162 )
3,271 Inventories (199,650 ) (161,541 ) Other current assets
(15,124 ) (9,182 ) Accounts payable (73,723 ) 64,007 Accrued
compensation (50,222 ) (14,125 ) Accrued income taxes (56,817 )
(42,120 ) Accrued liabilities (38,883 ) 44,590 Other assets and
liabilities 8,989 (5,518 ) Cash
provided (used) by operating activities (42,321 ) 308,500
Investing Activities Capital expenditures (64,022 ) (45,309
) Business acquisitions, net of cash acquired - (38,446 ) Trademark
acquisition (56,598 ) - Software purchases (8,221 ) (2,937 ) Other,
net (1,107 ) (3,957 ) Cash used by investing
activities (129,948 ) (90,649 )
Financing Activities
Increase (decrease) in short-term borrowings 6,252 (2,551 )
Payments on long-term debt (1,260 ) (1,719 ) Purchase of Common
Stock (5,166 ) (317,911 ) Cash dividends paid (137,182 ) (131,340 )
Proceeds from issuance of Common Stock, net 83,845 75,490 Tax
benefits of stock option exercises 14,718
2,758 Cash used by financing activities (38,793 )
(375,273 )
Effect of Foreign Currency Rate Changes on
Cash 30,301 (33,936 )
Net Change
in Cash and Equivalents (180,761 ) (191,358 )
Cash
and Equivalents - Beginning of Year 792,239
731,549
Cash and Equivalents - End of
Period $ 611,478 $ 540,191
VF
CORPORATION Supplemental Financial Information
Business Segment Information (In thousands)
Three Months Ended June Six Months
Ended June 2011 2010 2011
2010 Coalition Revenues Outdoor & Action
Sports $ 717,928 $ 584,447 $ 1,506,143 $ 1,263,009 Jeanswear
613,367 556,016 1,292,610 1,178,081 Imagewear 244,074 211,225
490,882 432,523 Sportswear 120,272 109,074 232,166 211,251
Contemporary Brands 118,103 106,083 230,019 210,172 Other
26,379 27,259 47,102
48,947 Total coalition revenues $ 1,840,123 $
1,594,104 $ 3,798,922 $ 3,343,983
Coalition Profit Outdoor & Action Sports $ 89,472
$ 81,524 $ 233,377 $ 208,551 Jeanswear 94,365 94,741 217,491
201,549 Imagewear 40,271 26,020 77,169 48,832 Sportswear 11,658
9,740 19,088 16,908 Contemporary Brands 10,689 8,214 20,373 16,666
Other 64 (10 ) (2,010 ) (1,235 )
Total coalition profit 246,519 220,229 565,488 491,271
Corporate and Other Expenses (60,583 ) (48,782 )
(106,840 ) (90,141 )
Interest, net (14,452 )
(19,998 ) (29,426 ) (40,003 )
Income Before
Income Taxes $ 171,484 $ 151,449 $ 429,222
$ 361,127
VF CORPORATION Supplemental
Financial Information Business Segment Information –
Constant Currency Basis (In thousands)
Three Months Ended June 2011 Impact of Foreign
As Currency Constant Reported
Exchange Currency Coalition Revenues
Outdoor & Action Sports $ 717,928 $ 26,911 $ 691,017 Jeanswear
613,367 12,498 600,869 Imagewear 244,074 1,242 242,832 Sportswear
120,272 - 120,272 Contemporary Brands 118,103 2,806 115,297 Other
26,379 - 26,379 Total
coalition revenues $ 1,840,123 $ 43,457 $ 1,796,666
Coalition Profit Outdoor & Action Sports $
89,472 $ 2,770 $ 86,702 Jeanswear 94,365 591 93,774 Imagewear
40,271 247 40,024 Sportswear 11,658 - 11,658 Contemporary Brands
10,689 19 10,670 Other 64 - 64
Total coalition profit 246,519 3,627 242,892
Corporate and Other Expenses (60,583 ) - (60,583 )
Interest, net (14,452 ) - (14,452 )
Income Before Income Taxes $ 171,484 $ 3,627 $
167,857
Constant Currency Financial
Information VF is a global company that reports financial
information in U.S. dollars in accordance with generally accepted
accounting principles. Foreign currency exchange rate fluctuations
affect the amounts reported by VF from translating its foreign
revenues and expenses into U.S. dollars. These rate fluctuations
can have a significant effect on reported operating results. As a
supplement to our reported operating results, we present constant
currency financial information, which is a non-GAAP financial
measure. We use constant currency information to provide a
framework to assess how our businesses performed excluding the
effects of changes in foreign currency translation rates.
Management believes this information is useful to investors to
facilitate comparisons of operating results and better identify
trends in our businesses.
To calculate coalition revenues and
profits on a constant currency 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).
These constant currency 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 constant currency information presented may not be comparable
to similarly titled measures reported by other companies.
VF CORPORATION Supplemental Financial Information
Business Segment Information – Constant Currency Basis
(In thousands) Six Months Ended June
2011 Impact of Foreign As Currency
Constant Reported Exchange Currency
Coalition Revenues Outdoor & Action Sports $
1,506,143 $ 29,781 $ 1,476,362 Jeanswear 1,292,610 16,055 1,276,555
Imagewear 490,882 1,930 488,952 Sportswear 232,166 - 232,166
Contemporary Brands 230,019 2,999 227,020 Other 47,102
- 47,102 Total coalition
revenues $ 3,798,922 $ 50,765 $ 3,748,157
Coalition Profit Outdoor & Action Sports $
233,377 $ 3,698 $ 229,679 Jeanswear 217,491 1,795 215,696 Imagewear
77,169 413 76,756 Sportswear 19,088 - 19,088 Contemporary Brands
20,373 10 20,363 Other (2,010 ) - (2,010 )
Total coalition profit 565,488 5,916 559,572
Corporate and Other Expenses (106,840 ) - (106,840 )
Interest, net (29,426 ) - (29,426 )
Income Before Income Taxes $ 429,222 $ 5,916 $
423,306
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