- First quarter revenue in line with
last year at $2.8 billion (up 2 percent currency neutral).
- Top five brands’ revenue up 2
percent (up 4 percent currency neutral).
- Outdoor & Action Sports and
Jeanswear revenue both up 2 percent (up 4 percent currency
neutral).
- Direct-to-consumer revenue up 7
percent (up 8 percent currency neutral).
- International revenue up 1 percent
(up 4 percent currency neutral).
VF Corporation (NYSE: VFC) today reported financial results for
its first quarter ended April 2, 2016. All per share amounts are
presented on a diluted basis. This release refers to “currency
neutral” and “reported” amounts, terms that are described under the
“Currency Neutral – Excluding the Impact of Foreign Currency”
paragraph. Reconciliations of GAAP measures to currency neutral
amounts are presented in the supplemental financial information
included with this release, which identifies and quantifies all
excluded items. Unless otherwise noted, currency neutral and
reported amounts are the same.
“Our first quarter results demonstrate the ability of our
diversified business model to perform as expected in an
inconsistent environment,” said Eric Wiseman, VF Chairman and Chief
Executive Officer. “By leveraging our strengths – driving
innovation into the marketplace, connecting with consumers and
operating with financial discipline – we are on track to deliver
results consistent with our 2016 outlook, while also delivering on
our commitment to shareholders.”
Income Statement Review
- Revenue was in line with last
year at $2.8 billion (up 2 percent currency neutral) driven by
strength in our Outdoor & Action Sports and Jeanswear
coalitions and our direct-to-consumer and international
businesses.
- Gross margin was 48.2 percent on
a reported basis, down 80 basis points compared with the same
quarter last year as benefits from lower product costs, pricing and
the continued mix shift to higher margin businesses were offset by
100 basis points from changes in foreign currency and proactive
inventory management efforts.
- Operating income on a reported
basis was down 15 percent to $336 million compared with the same
period of 2015. Operating margin on a reported basis declined 220
basis points to 11.8 percent. As a reminder, in the first quarter
of 2015, we recognized a one-time gain on the sale of a VF Outlet®
location. Excluding this transaction and a 90 basis point headwind
from changes in foreign currency rates, operating margin declined
70 basis points.
- Earnings per share was $0.61 per
share compared with $0.67 per share during the same period last
year. Excluding the negative impact of foreign currency, first
quarter earnings per share was flat.
Coalition Review
First quarter revenue for Outdoor & Action Sports was
up 2 percent (up 4 percent currency neutral) to $1.6 billion.
- Revenue for The North Face® brand was
up 6 percent (up 8 percent currency neutral) driven by a low
single-digit percentage rate increase in the Americas; a high-teen
percentage rate increase in Europe; and, a mid-single-digit
percentage rate increase in Asia-Pacific (up high single-digit
currency neutral).
- In line with expectations, Vans® brand
revenue was down 1 percent (up 2 percent currency neutral)
including a mid-single-digit increase in the Americas business (up
high single-digit currency neutral); a high single-digit increase
in Asia-Pacific (up low double-digit currency neutral); and a
mid-teen percentage rate decrease in Europe where the brand
continues to manage through elevated inventories related to its
Classics collection.
- Timberland® brand revenue was up 2
percent (up 3 percent currency neutral) in the first quarter
including a low single-digit increase (up mid-single-digit currency
neutral) in the Americas region; a mid-single-digit increase in
Europe; and a mid-single-digit decline in Asia-Pacific (down low
single-digit currency neutral).
First quarter operating income for Outdoor & Action Sports
declined 13 percent to $228 million (flat currency neutral).
Operating margin was 13.9 percent compared to 16.2 percent in the
same period last year. More than half of this decrease was due to
foreign currency fluctuations.
Jeanswear first quarter revenue was up 2 percent (up 4
percent currency neutral) to $711 million.
- First quarter revenue for the Wrangler®
brand was up 2 percent (up 4 percent currency neutral) with low
single-digit growth in the Americas business (up mid-single-digit
currency neutral); a mid-single-digit decline in Europe (down low
single-digit currency neutral); and a low single-digit decline (up
mid-single-digit currency neutral) in the Asia-Pacific region.
- Revenue for the Lee® brand was up 1
percent (up 4 percent currency neutral) including low single-digit
growth in the Americas region (up mid-single-digit currency
neutral); mid-single-digit growth in Europe (up high single-digit
currency neutral); and a low single-digit decline (up
mid-single-digit currency neutral) in the Asia-Pacific region.
Operating income for Jeanswear in the first quarter was up 4
percent to $137 million, with a 40 basis point increase in
operating margin to 19.3 percent.
Imagewear first quarter revenue was down 5 percent to
$269 million (down 4 percent currency neutral) with the Licensed
Sports Group business remaining flat and a high single-digit
decline in the workwear business, which continues to be impacted by
considerably less oil and gas exploration. First quarter operating
income for Imagewear was flat at $42 million, with an 80 basis
point increase in operating margin to 15.4 percent, driven by
pricing and changes in foreign currency rates related to our
manufacturing operations.
Sportswear first quarter revenue declined 13 percent to
$118 million including a 14 percent decrease in Nautica® brand
revenues and an 8 percent decrease in the Kipling® brand’s North
American business compared with the same period last year,
reflecting ongoing challenges in demand for the sector.
Additionally, the strategic decision to license the women’s
sleepwear and men’s underwear businesses negatively impacted
Nautica® brand revenue by about 6 percentage points in the quarter.
Operating income for Sportswear decreased 63 percent to $5 million
with a 550 basis point decrease in operating margin to 4.0
percent.
Contemporary Brands’ first quarter revenue was down 15
percent to $74 million, including a 53 percent decline in operating
income.
International Review
International revenue in the first quarter was up 1 percent (up
4 percent currency neutral). Revenue in Europe was up 1 percent (up
2 percent currency neutral) and in the Asia-Pacific region was up 2
percent (up 6 percent currency neutral). Revenue in the Americas
(non-U.S.) region was down 1 percent (up 12 percent currency
neutral). The international business represented 41 percent of
total VF first quarter sales, compared with 40 percent in last
year’s same period.
Direct-to-Consumer Review
Direct-to-consumer revenue was up 7 percent (up 8 percent
currency neutral) in the first quarter driven by low double-digit
growth in the Outdoor & Action Sports business, which was
offset by a mid-teen percentage rate decline in Sportswear and a
high single-digit decline in the Contemporary Brands coalition.
There were 1,541 VF-owned retail stores at the end of the quarter.
Direct-to-consumer revenue reached 26 percent of total revenue in
the first quarter compared with 24 percent in the 2015 period.
Balance Sheet Review
- Inventories were up 9 percent
compared with the same period of 2015. As noted in February, about
half of this amount is related specifically to core styles of
cold-weather product positioned to fill demand in the second half
of 2016.
- During the first quarter, the company
purchased 11.3 million of its shares for $714 million at an average
price of $63.13 under a program authorized by its Board of
Directors. There are approximately 19 million remaining shares
authorized for purchase.
2016 Outlook Highlights
There are no changes to management’s full-year outlook given on
February 19, 2016:
- Revenue is expected to increase
at a mid-single-digit percentage rate, including about one
percentage point of negative impact from changes in foreign
currency.
- Gross margin is expected to
improve by about 50 basis points to 48.8 percent, which includes
about 70 basis points of headwind from changes in foreign
currency.
- Operating margin is expected to
reach 14.4 percent, including about 70 basis points from the
anticipated negative impact of changes in foreign currency.
- Earnings per share, on a
currency neutral basis, is expected to increase 11 percent (up 5
percent reported) compared to an adjusted EPS of $3.08 in 2015. As
a reminder, 2015 adjusted earnings per share excluded the negative
impact of a $0.23 per share noncash impairment charge recorded in
the fourth quarter of 2015 to reduce the carrying value of
intangible assets related to our 7 For All Mankind®, Ella Moss® and
Splendid® brands. On a reported basis, 2015 earnings per share was
$2.85.
- Cash flow from operations is
expected to reach $1.3 billion.
Revenue in the first half is expected to be flat on a reported
basis, up at a low single-digit percentage rate currency neutral.
First half earnings per share should be down at a low double-digit
percentage rate on a reported basis, down low single-digit currency
neutral. As a reminder, the second quarter of 2015 benefitted by
$0.02 in earnings per share from a lower tax rate primarily due to
the settlement of prior years’ tax audits. We continue to expect
currency neutral revenue growth in the second half of 2016 to
increase at a high single-digit percentage rate, with the strongest
performance coming in the fourth quarter. We expect second half
reported earnings per share to increase at a mid-teen percentage
rate, or up at a high-teen percentage rate currency neutral.
Dividend Declared
VF’s Board of Directors declared a quarterly dividend of $0.37
per share, payable on June 20, 2016, to shareholders of record on
June 10, 2016.
Currency Neutral – Excluding the Impact of Foreign
Currency
This release refers to “currency neutral” amounts, which
exclude both the impact of translating
foreign currencies into U.S. dollars and the impact of currency
rate changes on foreign currency denominated transactions. This
release also refers to “reported” amounts in accordance with U.S.
generally accepted accounting principles (“GAAP”), which
include translation and transactional
impacts from foreign currency exchange rates. Reconciliations of
GAAP measures to currency neutral amounts for the first quarter of
2016 are presented in the supplemental financial information
included with this release, which identify and quantify all
excluded items.
Webcast Information
VF will hold its 2016 first quarter conference call and webcast
today at 8:30 a.m. Eastern Time. Interested parties should call
(888) 204-4610 (U.S.) or (913) 981-5590 (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
through May 6, 2016 at the same location or via telephone at
877-870-5176 (access code: 4650569).
About VF
VF Corporation (NYSE: VFC) is a global leader in the design,
manufacture, marketing and distribution of branded lifestyle
apparel, footwear and accessories. The company’s highly diversified
portfolio of 30 powerful brands spans numerous geographies, product
categories, consumer demographics and sales channels, giving VF a
unique industry position and the ability to create sustainable,
long-term growth for our customers and shareholders. The company’s
largest brands are The North Face®, Vans®, Timberland®,
Wrangler®, Lee® and Nautica®. For more information,
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: foreign currency fluctuations; the level of
consumer demand for apparel, footwear and accessories; disruption
to VF’s distribution system; VF's reliance on a small number of
large customers; the financial strength of VF's customers; VF's
ability to implement its business strategy; VF's ability to grow
its international and direct-to-consumer businesses; VF’s and its
customers’ and vendors’ ability to maintain the strength and
security of 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; VF's ability to protect
trademarks and other intellectual property rights; possible
goodwill and other asset impairment; changes in tax liabilities;
legal, regulatory, political and economic risks; and adverse or
unexpected weather conditions. 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.
VF CORPORATION
Condensed Consolidated Statements of
Income
(Unaudited)
(In thousands, except per share
amounts)
Three Months Ended March
%
2016* 2015 Change Net
sales $ 2,809,124 $ 2,803,302 0 %
Royalty income
30,176 33,999 (11 %)
Total
revenues 2,839,300 2,837,301 0 %
Costs and operating expenses Cost of goods sold
1,472,006 1,446,547 2 % Selling, general and administrative
expenses 1,031,042 992,919 4 % Total
costs and operating expenses 2,503,048
2,439,466 3 %
Operating income 336,252 397,835
(15 %)
Interest, net (20,155 ) (19,751 ) 2 %
Other
income (expense), net 1,290 828 56
%
Income before income taxes 317,387 378,912 (16 %)
Income taxes 57,118 90,203
(37 %)
Net income $ 260,269 $ 288,709
(10 %)
Earnings per common share Basic $ 0.62
$ 0.68 (9 %) Diluted $ 0.61 $ 0.67 (9 %)
Weighted average
shares outstanding Basic 421,748 426,255 Diluted 429,133
434,103
Cash dividends per common share $ 0.37 $ 0.32
16 %
Basis of presentation of condensed
consolidated financial statements: VF operates and reports
using a 52/53
week fiscal year ending on the Saturday
closest to December 31 of each year. For presentation purposes
herein,
all references to periods ended March
2016, December 2015 and March 2015 relate to the 13-week fiscal
period
ended April 2, 2016, the 52-week fiscal
period ended January 2, 2016 and the 13-week fiscal period ended
April
4, 2015, respectively.
* Reflects the impact of adopting
the new accounting guidance on stock compensation as of the
beginning of the
first quarter of 2016, which resulted in a
$15.8 million tax benefit in the consolidated statement of
income
for the three months ended March 2016.
VF CORPORATION
Condensed Consolidated Balance
Sheets
(Unaudited)
(In thousands)
March December
March
2016 2015 2015* ASSETS
Current assets Cash and equivalents $ 585,835 $ 945,605 $
655,483 Accounts receivable, net 1,293,275 1,319,558 1,283,216
Inventories 1,762,568 1,611,994 1,624,234 Other current assets
331,196 285,979 365,169 Total current assets
3,972,874 4,163,136 3,928,102
Property, plant and
equipment 986,162 988,159 911,478
Intangible assets
2,170,817 2,112,619 2,291,505
Goodwill 1,804,094 1,788,407
1,795,359
Other assets 898,316 587,221
672,261
Total assets $ 9,832,263 $ 9,639,542 $ 9,598,705
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities Short-term borrowings $ 1,137,205 $ 449,590 $
1,067,961 Current portion of long-term debt 3,489 13,279 3,384
Accounts payable 429,694 689,594 457,744 Accrued liabilities
959,079 789,250 743,176 Total current liabilities
2,529,467 1,941,713 2,272,265
Long-term debt
1,401,233 1,401,820 1,413,333
Other liabilities
1,007,617 911,171 1,008,842
Total liabilities
4,938,317 4,254,704 4,694,440
Stockholders' equity
4,893,946 5,384,838 4,904,265
Total
liabilities and stockholders' equity $ 9,832,263 $ 9,639,542 $
9,598,705
* Reflects the impact of adopting
the new accounting guidance on classification of debt issuance
costs and deferred
income taxes as of December 2015 on a
retrospective basis. The new guidance requires classification of
debt issuance
costs related to a recognized debt
liability as a direct reduction of that liability, and
classification of all
deferred taxes as noncurrent.
VF CORPORATION
Condensed Consolidated Statements of
Cash Flows
(Unaudited)
(In thousands)
Three Months Ended March 2016
2015* Operating activities Net income $
260,269 $ 288,709 Depreciation and amortization 68,030 65,880 Other
adjustments (473,885 ) (755,535 ) Cash used by
operating activities (145,586 ) (400,946 )
Investing
activities Capital expenditures (36,336 ) (33,028 ) Software
purchases (6,335 ) (36,708 ) Other, net (587 ) 10,617
Cash used by investing activities (43,258 ) (59,119 )
Financing activities Net increase in short-term borrowings
685,985 1,047,660 Payments on long-term debt (10,695 ) (1,414 )
Purchases of treasury stock (713,767 ) (730,811 ) Cash dividends
paid (155,584 ) (135,912 ) Net impact of stock issuance
4,102 (4,107 ) Cash (used) provided by financing
activities (189,959 ) 175,416
Effect of foreign currency
rate changes on cash and equivalents 19,033
(31,763 )
Net change in cash and equivalents
(359,770 ) (316,412 )
Cash and equivalents - beginning of
year 945,605 971,895
Cash
and equivalents - end of period $ 585,835 $ 655,483
* Reflects the impact of adopting
the new accounting guidance on stock compensation as of the
beginning of the first quarter of
2016, which resulted in a $29.7 million
reclassification of cash flows from financing activities to
operating activities in the
consolidated statement of cash flows for
the three months ended March 2015.
VF CORPORATION
Supplemental Financial
Information
Business Segment Information
(Unaudited)
(In thousands)
% Change
Currency
Neutral**
Three Months Ended March % 2016
2015 Change Coalition
revenues Outdoor & Action Sports $ 1,644,395 $ 1,606,889 2
% 4 % Jeanswear 710,590 699,655 2 % 4 % Imagewear 269,125 282,896
(5 %) (4 %) Sportswear 118,397 135,657 (13 %) (13 %) Contemporary
Brands 74,356 87,537 (15 %) (15 %) Other 22,437
24,667 (9 %) (9 %) Total coalition revenues $
2,839,300 $ 2,837,301 0 % 2 %
Coalition profit Outdoor & Action Sports $ 227,771 $
260,820 (13 %) 0 % Jeanswear 137,294 131,932 4 % 4 % Imagewear
41,515 41,347 0 % (5 %) Sportswear 4,776 12,841 (63 %) (63 %)
Contemporary Brands 1,669 3,540 (53 %) (51 %) Other (2,358 )
14,527 * * Total coalition profit 410,667
465,007 (12 %) (5 %)
Corporate and other expenses
(73,125 ) (66,344 ) 10 % 10 %
Interest, net (20,155 )
(19,751 ) 2 % 2 %
Income before income taxes $
317,387 $ 378,912 (16 %) (8 %)
*
Calculation not meaningful
** Refer to currency neutral
definition on following page
VF CORPORATION
Supplemental Financial
Information
Business Segment Information – Currency
Neutral Basis
(Unaudited)
(In thousands)
Three Months Ended March 2016 As
Reported Adjust for Foreign under GAAP
Currency Exchange Currency Neutral
Coalition revenues Outdoor & Action Sports $ 1,644,395 $
23,558 $ 1,667,953 Jeanswear 710,590 17,324 727,914 Imagewear
269,125 1,065 270,190 Sportswear 118,397 - 118,397 Contemporary
Brands 74,356 78 74,434 Other 22,437 -
22,437 Total coalition revenues $ 2,839,300
$ 42,025 $ 2,881,325
Coalition
profit Outdoor & Action Sports $ 227,771 $ 32,162 $ 259,933
Jeanswear 137,294 (289 ) 137,005 Imagewear 41,515 (2,189 ) 39,326
Sportswear 4,776 - 4,776 Contemporary Brands 1,669 73 1,742 Other
(2,358 ) - (2,358 ) Total
coalition profit 410,667 29,757 440,424
Corporate and
other expenses (73,125 ) (6 ) (73,131 )
Interest, net
(20,155 ) - (20,155 )
Income
before income taxes $ 317,387 $ 29,751 $ 347,138
Diluted earnings per share growth (9 %)
9 % 0 %
Currency Neutral Financial Information
VF is a global company that reports financial information in
U.S. dollars in accordance with GAAP. Foreign currency exchange
rate fluctuations affect the amounts reported by VF from
translating its foreign revenues and expenses into U.S. dollars,
and from entering foreign currency transactions. These rate
fluctuations can have a significant effect on reported operating
results. As a supplement to our reported operating results, we
present currency neutral financial information, which is a non-GAAP
financial measure that excludes the incremental current year impact
of foreign currency exchange. We use currency neutral information
to provide a framework to assess how our business performed
excluding the effects of changes in the rates used to calculate
foreign currency translation and transaction gains and losses.
Management believes this information is useful to investors to
facilitate comparison of operating results and better identify
trends in our businesses.
To calculate foreign currency translation on a currency neutral
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).
Similarly, transaction gains and losses on a currency neutral basis
are calculated using exchange rates from the comparable period of
the prior year.
These currency neutral 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
currency neutral information presented may not be comparable to
similarly titled measures reported by other companies.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160429005268/en/
VF CorporationLance Allega, 336-424-6082Vice President,
Investor RelationsorCraig Hodges, 336-424-5636Senior Director,
Corporate Communications
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