UPDATE: VF Corp 2Q Profit Rose 17%; Raises Year Forecast Again
July 21 2011 - 1:56PM
Dow Jones News
VF Corp.'s (VFC) second-quarter earnings rose a
better-than-expected 17% as the branded-apparel maker saw
double-digit sales growth in all segments, though margins were
pressured by higher costs.
VF's shares were recently trading up 4.8% at $119.95 as the
company also raised its full-year estimates for the second time.
The stock is up 39% so far this year.
VF now anticipates full-year earnings of $7.50 a share on
revenue growth of 12% to 13%. Its April forecast was $7.25 a share
on 10% revenue growth.
The updated guidance doesn't include expected benefits from VF's
pending acquisition of footwear company Timberland Co., which it
plans to complete in the third quarter. VF expects the deal could
add $700 million in revenue and 25 cents in earnings per share.
VF, which makes clothes under brands such as Lee, The North Face
and Jansport, has continued to report improved results in recent
quarters, despite rising cotton prices. But VF had warned that its
second half would be challenging due to steepening costs and
uncertainty surrounding consumer response to additional price
increases later this year.
However, on its conference call Thursday, VF said unit volumes
in its U.S. jeans business, one of the areas most affected by the
rise in cotton costs, have increased a bit in both the first and
second quarters despite pricing increases put in place earlier in
the year. That means the company is seeing a little less impact
from pricing than initially anticipated, said Chief Financial
Officer Robert Shearer. Additional price increases will take place
in the second half of the year as planned, he said, but added that
they aren't fully offsetting the cost increases.
Gross margin fell to 45.9% from 47.1%, reflecting an 18%
increase in the costs of goods sold.
On its call, the company said it expects a similar gross margin
performance in the third quarter, but that the year-over-year
decline should moderate in the fourth quarter.
Sterne Agee & Leach analyst Kenneth Stumphauzer said that
while inflation is detrimental to this year's results for
retailers, there's an argument that it may result in structurally
higher margins in the future.
"I think the initial results out of retail to-date have been
encouraging regarding customer acceptance of price increases," he
said. "If you get to a scenario where a year from now, input costs
have receded and some of the pricing that you took sticks, then you
have a structural benefit to margins going forward."
For the second quarter VF reported a profit of $129.4 million,
or $1.17 a share, up from $110.8 million, or $1 a share, a year
earlier. The latest period included a net 5-cent gain tied to a
facility closure. Sales jumped 15% to $1.84 billion.
Analysts polled by Thomson Reuters had most recently forecast
earnings of $1.02 a share on sales of $1.74 billion.
Sales at the outdoor and action sports products segment, the
largest top-line contributor, rose 23%, and jeanswear sales grew
10%.
Imagewear revenue was up 16%, while Sportswear and
contemporary-brands revenue grew 10% and 11%, respectively.
-By Caitlin Nish, Dow Jones Newswires; 212-416-2076;
caitlin.nish@dowjones.com
--Melodie Warner contributed to this article
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