VF Corporation (NYSE: VFC) today reported financial results for
its first quarter ended March 30, 2013. All per share amounts are
presented on a diluted basis. “Adjusted” amounts refer to non-GAAP
measures as described in the “Adjusted Amounts” paragraph at the
end of this release.
“VF’s first quarter performance is a great example of our strong
business model, disciplined execution and our ability to leverage
all aspects of our portfolio,” said Eric Wiseman, VF Chairman and
Chief Executive Officer. “The combination of powerful brands and
strong operating platforms creates a unique engine capable of
delivering consistent, long-term shareholder value. With a strong
start to the year, we’re well positioned to achieve our full year
goals.”
First Quarter 2013 Review
Revenues rose 2 percent, as anticipated, to $2.6 billion
compared with the same period of 2012, driven by strength in the
Outdoor & Action Sports, international and direct-to-consumer
businesses. The sale of John Varvatos in April 2012 negatively
impacted VF’s revenue growth comparison by 1 percentage point in
the first quarter.
Gross margin improved 240 basis points to 48.1 percent,
an all-time high for any quarter in VF’s history. This performance,
which includes improvements in nearly every coalition, compares
with 45.7 percent in the same period of 2012. The higher gross
margin reflects lower year-over-year product costs and the
continued shift in our revenue mix towards higher margin
businesses.
Operating income on an adjusted basis grew 13 percent to
$360 million in the first quarter compared with $319 million in the
same period of 2012. On a GAAP basis, first quarter operating
income increased 14 percent to $358 million, compared with $314
million in last year’s same period. Adjusted operating
margin was 13.8 percent compared with 12.5 percent in the first
quarter of 2012. On a GAAP basis, operating margin rose to 13.7
percent from 12.3 percent in the first quarter of 2012.
Net income on an adjusted basis grew by 25 percent to
$273 million from $219 million in the first quarter of 2012.
Adjusted earnings per share – which excludes Timberland
acquisition-related items of $0.02 per share in the first quarter –
increased 25 percent, to $2.43 from $1.94 during the same period
last year. This increase includes a $0.12 per share discrete tax
benefit primarily related to the impact of U.S. tax law changes
enacted in 2013, which are retroactive to 2012. On a GAAP basis,
first quarter net income was $270 million, with a 26 percent
increase in earnings per share to $2.41, including the $0.12 per
share discrete tax benefit noted above.
First Quarter Coalition Review
Outdoor & Action Sports revenues were up 10 percent
in the quarter to $1.4 billion with balanced growth across both the
U.S. and international markets.
Revenues for The North Face® brand rose 6 percent with low
single-digit growth in both the Americas and Europe regions, and
continued strong double-digit growth in Asia. Helped by colder,
more seasonable weather, the brand’s direct-to-consumer business
posted a strong double-digit revenue increase in the quarter.
The Vans® brand momentum continued in the first quarter with a
25 percent increase in revenues including over 20 percent growth in
the Americas and Asia regions, and more than a 30 percent increase
in Europe. The Vans® brand posted strong double-digit revenue
increases in both its wholesale and direct-to-consumer
channels.
Timberland® brand revenues were in line with expectations; up 2
percent in the first quarter with mid-teen growth in Asia and a mid
single-digit increase in the Americas region. In Europe, where
challenging macro-economic conditions continue to impact the
business, the brand experienced a mid single-digit decline in
revenues. The Timberland® brand’s direct-to-consumer business,
which continues to show good progress, grew at a high-teens rate in
the quarter.
First quarter Outdoor & Action Sports operating income rose
12 percent to $227 million and operating margin increased 40 basis
points to 16.4 percent compared with 16 percent in the 2012
period.
Jeanswear revenues, as expected, decreased 3 percent to
$718 million, including slightly lower sales in the Americas
region, which faced difficult comparisons due to earlier shipments
of spring seasonal products in the prior year’s quarter.
Additionally, the first quarter of 2013 was impacted by difficult
conditions in the mid-tier channel. Jeanswear revenues in Europe
declined at a mid single-digit rate. In Asia, as anticipated,
Jeanswear revenues declined by a low double-digit rate, as the Lee®
brand navigates an industry-wide build up in inventories that began
during the latter part of 2012.
Revenues for the Wrangler® brand were down 2 percent with
strength in its U.S. Western and Latin American businesses offset
by a slight decline in its U.S. Mass business due to the previously
mentioned seasonal product pull-forwards in the prior year period.
The Lee® brand’s first quarter revenues were down 6 percent due to
continued challenging dynamics in the mid-tier channel in the U.S.
and difficult macroeconomic conditions in Europe. And as noted
above, the Lee® brand experienced lower sales in Asia as retailers
work through elevated inventory levels.
Favorable year-over-year product costs and continued
improvements in operating efficiencies led to a 29 percent increase
in Jeanswear operating income to $143 million. Operating margin
reached 20 percent in the quarter with improvements in both the
Wrangler® and Lee® brands across every region of the world.
Imagewear revenues declined 9 percent in the first
quarter to $253 million against exceptionally strong growth in the
first quarter of 2012. The first quarter comparison was impacted by
a program that was shipped in the first quarter of 2012 that is not
expected to ship until the second half of 2013. Related to the
lower volume, first quarter Imagewear operating margin decreased to
12.5 percent.
Sportswear posted revenue growth of 4 percent to $128
million driven by a low single-digit increase in the Nautica® brand
and mid-teen growth in the Kipling® (U.S.) brand. The Nautica®
brand revenues in the first quarter were impacted by a shift in
timing of shipments that should drive a mid-teen revenue increase
in the second quarter. Direct-to-consumer revenues for the
Sportswear businesses increased more than 20 percent in the quarter
contributing to an 80 basis point improvement in operating margin
over the prior year period.
Contemporary Brands revenues were down 18 percent in the
quarter to $104 million, with 14 percentage points of the decline
due to the absence of John Varvatos, which was sold in April 2012.
Excluding John Varvatos from the first quarter of 2012, revenues
were down 4 percent. Direct-to-consumer revenues, excluding John
Varvatos, increased 9 percent.
Contemporary Brands’ operating income in the first quarter
decreased 15 percent to $13 million. Operating margin expanded by
40 basis points to 12.1 percent, driven by improved
direct-to-consumer performance.
International Review
First quarter international revenues increased 6 percent.
Revenues in the Americas (non-U.S.) region increased 10 percent
with strong performances from the Vans®, Timberland® and Wrangler®
brands. In Asia, revenues were up 9 percent, reflecting strong
results by all Outdoor & Action Sports brands. Revenues in
Europe rose 4 percent driven by double-digit growth in the
direct-to-consumer businesses of the Vans®, The North Face®,
Timberland® and Napapijri® brands. International revenues reached
42 percent of total VF revenues in the first quarter compared with
40 percent in the same period of 2012.
Direct-to-Consumer Review
Direct-to-consumer revenues increased 12 percent in the first
quarter including a 25 percent increase in The North Face® brand,
an 18 percent increase in the Timberland® brand and a 15 percent
increase in the Vans® brand. Direct-to-consumer revenues for the
Nautica®, Kipling®, Napapijri®, Splendid® and Ella Moss® brands
also each achieved double-digit growth during the quarter. A total
of 20 stores were opened across our brands in the quarter bringing
the total number of owned retail stores to 1,132.
Direct-to-consumer revenues reached 20 percent of total revenues in
the first quarter compared with 19 percent in the 2012 period.
Balance Sheet Review
Inventories were down $107 million, or 7 percent, from March
2012 levels reflecting VF’s highly disciplined approach to
inventory control. During the first quarter, VF repurchased a total
of 1.7 million shares for approximately $280 million and made a
discretionary contribution of $100 million to its pension plan.
2013 Earnings Guidance Raised
Revenue guidance for 2013 remains unchanged, with revenues
expected to rise by 6 percent to $11.5 billion. Also unchanged is
an expected improvement of 100 basis points in gross margin and
nearly a 100 basis point increase in operating margin for the year.
Based on slightly stronger than expected first quarter results,
adjusted earnings per share in 2013 are now expected to rise to
$10.75 per share, up $0.05 from the $10.70 per share guidance
provided on February 15. On a GAAP basis, which includes an
estimated $0.10 per share in Timberland acquisition-related
expenses, earnings per share in 2013 are now expected to rise to
$10.65 per share, up $0.05 from the prior guidance of $10.60 per
share.
Looking forward to the second quarter, last year’s adjusted
earnings per share of $1.11 included a non-recurring $0.10 per
share discrete tax benefit primarily related to the settlement of
prior years’ audits. On a reported (GAAP) basis, last year’s second
quarter earnings per share of $1.40 included three non-recurring
items: a $0.32 per share benefit related to the sale of John
Varvatos, the previously described $0.10 per share discrete tax
benefit, and a $0.03 negative impact resulting from Timberland
acquisition-related expenses.
Adjusted Amounts
This release refers to adjusted amounts that exclude
restructuring and other items related to the acquisition of
Timberland, which approximated $3 million ($0.02 per share) in the
first quarter of 2013 compared to $5 million ($0.03 per share) in
the first quarter of 2012. Adjusted amounts for the full year
exclude anticipated Timberland acquisition-related expenses of $14
million ($0.10 per share) in 2013 compared to $31 million ($0.25
per share) in 2012. Additionally, adjusted amounts in 2012 exclude
the gain on the sale of John Varvatos of approximately $42 million
($0.32 per share inclusive of a $0.10 per share tax benefit
triggered by the sale). Reconciliations of certain GAAP measures to
adjusted amounts are presented in the supplemental financial
information included with this release, which identify and quantify
all excluded items.
Dividend Declared
VF’s Board of Directors declared a quarterly dividend of $0.87
per share, payable on June 20, 2013 to shareholders of record on
June 10, 2013.
Webcast Information
VF will hold its first quarter conference call and webcast today
at approximately 8:30 a.m. Eastern Time. Interested parties should
call 800-946-0708 (domestic) or 719-457-2705 (international) to
access the call. The conference call will be broadcast live and
accessible at www.vfc.com. A replay of the conference call will be
available from April 26 through May 3, 2013, via telephone at
877-870-5176 (access code: 7081910) or at www.vfc.com.
About VF
VF Corporation is a global leader in branded lifestyle apparel
and footwear with more than 30 brands. The company’s largest five
brands are The North Face®, Wrangler®, Timberland®, Vans®, and
Lee®. Other brands include 7 For All Mankind®, Bulwark®, Eagle
Creek®, Eastpak®, Ella Moss®, JanSport®, Kipling®, lucy®,
Majestic®, Napapijri®, Nautica®, Red Kap®, Reef®, Riders®,
Splendid® and SmartWool®. For more information, please visit
www.vfc.com.
Forward Looking Statements
Certain statements included in this release and the attachments
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. You can
identify these statements by the fact that they use words such as
“will,” “anticipate,” “estimate,” “expect,” “should,” and “may” and
other words and terms of similar meaning or use of future dates. 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,
but are not limited to, the level of consumer confidence and
overall level of consumer demand for apparel; fluctuations in the
price, availability and quality of raw materials and contracted
products; disruption to VF’s distribution system; 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; VF’s response to changing fashion trends;
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, including the Timberland
acquisition; VF's ability to maintain the strength and security of
its information technology systems; adverse unseasonable weather
conditions; 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; changes in tax liabilities, 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.
(Financial Tables Follow)
VF CORPORATION Consolidated
Statements of Income (Unaudited) (In thousands,
except per share amounts) Three Months Ended
March 2013 2012 Net sales $
2,582,230 $ 2,527,417
Royalty income 29,639
29,038
Total revenues 2,611,869
2,556,455
Costs and operating
expenses Cost of goods sold 1,355,277 1,388,866 Marketing,
administrative and general expenses 898,864
853,487 2,254,141 2,242,353
Operating income 357,728 314,102 Interest
income 490 1,038 Interest expense (21,008 ) (23,345 ) Other income
(expense), net 1,039 1,746
Income before income taxes 338,249 293,541
Income
taxes 67,832 78,314
Net
income 270,417 215,227
Net (income) loss attributable
to noncontrolling interests - (11 )
Net income attributable to VF Corporation $ 270,417 $
215,216
Earnings per common share attributable to
VF Basic $ 2.46 $ 1.95 Diluted 2.41 1.91
Weighted
average shares outstanding Basic 110,068 110,527 Diluted
111,974 112,750
Cash dividends per common share $
0.87 $ 0.72
Basis of presentation: 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 first quarter ends on the
Saturday closest to March 31. For presentation purposes herein, all
references to periods ended March 2013, December 2012 and March
2012 relate to the 13 week, 52 week and 13 week fiscal periods
ended March 30, 2013, December 29, 2012, and March 31, 2012,
respectively.
VF CORPORATION
Consolidated Balance Sheets (Unaudited) (In
thousands, except share amounts) March
December March 2013 2012 2012
ASSETS Current assets Cash and equivalents $
300,437 $ 597,461 $ 325,649 Accounts receivable, net 1,208,682
1,222,345 1,206,179 Inventories 1,409,443 1,354,158 1,516,446 Other
current assets 341,065 275,619
315,059 Total current assets 3,259,627 3,449,583 3,363,333
Property, plant and equipment 866,251 828,218 729,079
Intangible assets 2,897,701 2,917,058 2,956,312
Goodwill 2,000,703 2,009,757 2,018,839
Other assets
466,992 428,405 435,754
Total assets $ 9,491,274 $ 9,633,021 $ 9,503,317
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities Short-term borrowings $ 182,206 $ 12,559
$ 680,500 Current portion of long-term debt 402,910 402,873 2,789
Accounts payable 432,918 562,638 537,531 Accrued liabilities
687,366 754,142 683,500 Total
current liabilities 1,705,400 1,732,212 1,904,320
Long-term debt 1,428,496 1,429,166 1,831,113
Other
liabilities 1,268,384 1,346,018 1,316,216
Commitments and
contingencies Stockholders' equity Preferred Stock, par
value $1 - - - Common Stock, stated value $1 109,257 110,205
109,296 Additional paid-in capital 2,595,430 2,527,868 2,384,636
Accumulated other comprehensive income (loss) (423,135 ) (453,895 )
(376,979 ) Retained earnings 2,807,442
2,941,447 2,335,520 Total equity attributable
to VF Corporation 5,088,994 5,125,625 4,452,473 Noncontrolling
interests - - (805 ) Total
stockholders' equity 5,088,994 5,125,625
4,451,668 Total liabilities and stockholders'
equity $ 9,491,274 $ 9,633,021 $ 9,503,317
VF CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(In thousands) Three Months Ended March
2013 2012 Operating activities Net
income $ 270,417 $ 215,227
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Depreciation 36,490 35,064 Amortization of intangible assets 11,525
12,181 Other amortization 9,933 5,658 Stock-based compensation
23,209 22,922 Provision for doubtful accounts 5,516 4,199 Pension
expense in excess of (less than) contributions (86,854 ) 17,829
Other, net 53,213 17,157
Changes in operating assets and
liabilities, net of purchases and sales of businesses:
Accounts receivable (8,938 ) (73,491 ) Inventories (62,263 )
(55,174 ) Other current assets (68,034 ) (6,657 ) Accounts payable
(127,139 ) (188,949 ) Accrued compensation (68,880 ) (93,453 )
Accrued income taxes (18,791 ) 7,242 Accrued liabilities 32,772
(30,459 ) Other assets and liabilities 9,498
(1,433 ) Cash provided (used) by operating activities 11,674
(112,137 )
Investing activities Capital expenditures
(102,227 ) (25,140 ) Software purchases (10,547 ) (13,370 ) Other,
net (2,225 ) 6,341 Cash used by investing
activities (114,999 ) (32,169 )
Financing activities
Net increase (decrease) in short-term borrowings 169,754 397,595
Payments on long-term debt (707 ) (698 ) Purchase of Common Stock
(281,370 ) (210,840 ) Cash dividends paid (96,263 ) (79,924 )
Proceeds from issuance of Common Stock, net (7,598 ) (2,164 ) Tax
benefits of stock option exercises 24,222
22,055 Cash provided (used) by financing activities (191,962
) 126,024
Effect of foreign currency rate changes
on cash and equivalents (1,737 ) 2,703
Net change in cash and equivalents (297,024 ) (15,579
)
Cash and equivalents - beginning of year
597,461 341,228
Cash and equivalents - end of
period
$ 300,437 $ 325,649
VF CORPORATION Supplemental Financial
Information Business Segment Information
(Unaudited) (In thousands) Three
Months Ended March 2013 2012 Coalition
Revenues Outdoor & Action Sports $ 1,384,274 $ 1,263,967
Jeanswear 717,929 741,711 Imagewear 252,757 277,521 Sportswear
128,233 122,915 Contemporary Brands 103,727 126,904 Other
24,949 23,437 Total coalition revenues
$ 2,611,869 $ 2,556,455
Coalition
Profit Outdoor & Action Sports $ 226,502 $ 201,700
Jeanswear 143,343 110,772 Imagewear 31,586 42,926 Sportswear 12,216
10,726 Contemporary Brands 12,576 14,858 Other (2,657 )
(1,610 ) Total coalition profit 423,566 379,372
Corporate and Other Expenses (64,799 ) (63,524 )
Interest, net (20,518 ) (22,307 )
Income Before Income Taxes $ 338,249 $ 293,541
VF CORPORATION
Supplemental Financial Information Business Segment
Information – Constant Currency Basis (Unaudited) (In
thousands) Three Months Ended March 2013
Exclude As Reported Impact of Foreign
Constant under GAAP Currency Exchange
Currency Coalition Revenues Outdoor &
Action Sports $ 1,384,274 $ 906 $ 1,383,368 Jeanswear 717,929
(1,928 ) 719,857 Imagewear 252,757 (303 ) 253,060 Sportswear
128,233 - 128,233 Contemporary Brands 103,727 43 103,684 Other
24,949 - 24,949
Total coalition revenues $ 2,611,869 $ (1,282 ) $ 2,613,151
Coalition Profit Outdoor & Action Sports $
226,502 $ 791 $ 225,711 Jeanswear 143,343 100 143,243 Imagewear
31,586 - 31,586 Sportswear 12,216 - 12,216 Contemporary Brands
12,576 (4 ) 12,580 Other (2,657 ) -
(2,657 ) Total coalition profit 423,566 887 422,679
Corporate and Other Expenses (64,799 ) - (64,799 )
Interest, net (20,518 ) -
(20,518 )
Income Before Income Taxes $ 338,249
$ 887 $ 337,362
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 business performed excluding the effects of changes in
foreign currency translation rates. Management believes this
information is useful to investors to facilitate comparison 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 Reconciliation of
Select GAAP Measures to Non-GAAP Measures (Unaudited)
(In thousands) Three Months Three
Months Ended Operating Ended
Operating March 2013 Margin March 2012
Margin Operating income, as reported under
GAAP $ 357,728
13.7%
$ 314,102
12.3%
Timberland acquisition-related expenses 2,742 4,642
Operating income, as adjusted $ 360,470
13.8%
$ 318,744
12.5%
Net income, as reported under GAAP $ 270,417 $
215,216 Timberland acquisition-related expenses 2,235
3,295
Net income, as adjusted $ 272,652
$ 218,511
Diluted earnings per share, as reported
under GAAP
$ 2.41 $ 1.91 Timberland acquisition-related expenses 0.02
0.03
Diluted earnings per share, as adjusted $
2.43 $ 1.94
Non-GAAP Financial Information
The financial information above has been presented on a GAAP
basis and on an adjusted basis which excludes the impact of costs
related to the acquisition of The Timberland Company. These
adjusted presentations are non-GAAP measures. Management believes
these measures provide investors with useful supplemental
information regarding VF's underlying business trends and the
performance of VF's ongoing operations and are useful for
period-over-period comparisons of such operations.
Management uses the above financial measures internally in its
budgeting and review process and, in some cases, as a factor in
determining compensation. While management believes that these
non-GAAP financial measures are useful in evaluating the business,
this information should be considered as supplemental in nature and
should be viewed in addition to, and not in lieu of or superior to,
VF's operating performance measures calculated in accordance with
GAAP. In addition, these non-GAAP financial measures may not be the
same as similarly titled measures presented by other companies.
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