V.F. Corporation (VFC) reported first-quarter
2012 adjusted earnings of $1.94 per share, striding ahead of the
Zacks Consensus Estimate of $1.88. The result also surpassed
adjusted earnings of $1.82 per share in the prior-year quarter.
The robust increase in earnings per share was primarily driven
by strong top-line growth and a contribution of 12 cents per share
from the Timberland acquisition. On a reported basis, the company’s
earnings came in at $1.91 per share.
Operational Performance
V.F. Corp.'s first-quarter revenue of $2,556 million exceeded
the Zacks Consensus Estimate of $2,448 million. Revenues eclipsed
the year-ago figure by 31%, with Timberland contributing
significantly to quarterly revenue.
Substantial revenue growth at all V.F. Corp.'s coalitions led to
the overall climb. During the quarter, Outdoor & Action Sports
segment was the strongest, recording a 60% rise in revenue.
Costs and operating expenses on a year-over-year basis increased
33.1% in the reported quarter. Gross margin in the quarter declined
150 basis points to 45.7% from its previous high of 47.2% in the
year-ago quarter, resulting from higher product costs in the
Jeanswear segment. Adjusted operating margin, excluding Timberland,
contracted 50 basis points to 13.5%.
Segment Performance
Revenue at Outdoor & Action Sports jumped
60% from the year-ago quarter to $1,264 million, of which
Timberland and Smartwool brands contributed $356 million. Business
from both the Americas and international operations contributed to
the revenue increase.
First-quarter operating income (including Timberland) increased
40% from the year-ago quarter to $202 million, while operating
margin contracted 230 basis points year over year to 16.0%.
However, excluding Timberland, operating margin expanded 200 basis
points to 20.3%.
Jeanswear revenue increased 9% to $741.7
million, driven by double-digit growth at the domestic brands,
while international jeans revenue declined marginally. However, the
segment’s operating income and margin in the quarter dropped due to
higher product costs.
Imagewear revenue increased 12% in the quarter
to $277.5 million, driven by a 21% and 3% revenue growth in Image
business and Licensed Sports, respectively. Moreover, operating
income at the segment jumped 16% in the quarter, with margin
expanding 50 basis points to 15.5%.
Revenue at Sportswear increased 10% to $122.9
million driven by revenue growth in its U.S. brands, namely Nautica
and Kipling. Operating income in the quarter climbed 44%
while operating margin expanded 210 basis points to 8.7%.
Contemporary Brands experienced a revenue
increase of 13% to $126.9 million with growth across all its
brands. Operating income rose 53% during the quarter, registering a
substantial improvement in gross margins, which expanded 300 basis
points to 11.7%.
The company’s international revenues increased 48%, contributing
about 40% to total revenue. The growth was largely driven by
strength across the biggest brands in Asia and Europe.
Additionally, Timberland contributed 33 percentage points to this
growth.
Direct-to-consumer revenue increased 49% in the quarter, driven
by new store openings and the Timberland acquisition. The company
opened 24 stores across diverse brands in the quarter, bringing the
total number of owned retail stores to 1,059 at the end of
first-quarter 2012. Timberland contributed 32 percentage points to
this growth.
Balance Sheet
V.F. Corp. ended the first quarter with cash and cash
equivalents of $325.6 million and long-term debt of $1,831.1
million. The company’s shareholder equity came in at $4,451.7
million at the end of the first quarter of 2012.
Dividend
The board of directors of V.F. Corp. declared a quarterly cash
dividend of 72 cents per share. The dividend will be paid on June
18, 2012 to shareholders of record as of June 8, 2012.
Looking into 2012
Bolstered by better-than-expected quarterly results, the company
now expects earnings of approximately $9.45 per share in fiscal
2012, up 15 cents from $9.30 per share guided earlier.
However, the company retained the expected earnings contribution
from Timberland at $1.10 per share.
The company maintains its revenue projection of an increase of
approximately 15% year over year to $10.9 billion in fiscal 2012.
Timberland is expected to contribute about $1 billion to fiscal
2012 revenue.
However, the company expects earnings per share comparisons for
the second quarter of 2012 to be challenging, due to the seasonal
nature of Timberland business (which has historically posted losses
in the second quarter), a negative impact from foreign currency
translation and higher pension expense, partly offset by gains from
facility closures.
Our Take
We expect V.F. Corp. to continue delivering 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.
Moreover, we believe that V.F. Corp.’s policy to acquire
businesses providing strategic opportunities and exiting businesses
having lower potential have helped the company to drive growth
while improving profitability.
The recent merger of Timberland in the V.F. Corporation
portfolio of brands of outdoor and action sports business
comprising Vans, Jansport, Eastpak and other brands, will account
for 50% of the company's total revenue in fiscal 2012, which is
expected to rise to 60% by 2015.
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
Neutral recommendation on the stock.
GAP INC (GPS): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
V F CORP (VFC): Free Stock Analysis Report
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