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V.F. Corp (VFC) Beats on Earnings in Q1, Raises Guidance

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V.F. Corporation VFC reported first-quarter fiscal 2022 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year on year. Results gained from growth across segments, channels and geographic regions.

Management is impressed with the broad-based momentum witnessed across the company’s portfolio and expects the same to sustain through fiscal 2022. That said, the company raised fiscal 2022 revenues and earnings expectations.

The company highlighted that in North America less than 5% of stores were closed in the beginning of the first quarter. All stores have opened since then and have been operational. In EMEA, nearly 60% of stores were closed at the beginning of the first quarter. All stores have re-opened since then and are operational. In APAC, including Mainland China, all stores are open at the beginning of the quarter. Additional stores were closed as the quarter progressed and currently 5% of stores are closed in the region.

Shares of this Zacks Rank #3 (Hold) company have increased 7.6% in the past six months compared with the industry’s growth of 16.4%.

Zacks Investment Research
Zacks Investment Research

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Q1 Highlights

V.F. Corp’s adjusted earnings per share of 27 cents surged 148% from the year-ago quarter’s levels. The bottom line surpassed the Zacks Consensus Estimate of 11 cents. On a constant-currency (cc) basis, adjusted earnings per share were up 144%. Earnings per share included 7 cents contribution from acquisitions.

Net revenues of $2,194.6 million rose 104% year over year and surpassed the Zacks Consensus Estimate of $2,167 million. At cc, revenues were up 96%. Without the impact of acquisitions, revenues rallied 90% (up 83% at cc) on gains from VF's largest brands. The top-line also gained from growth in the EMEA and North America regions, which experienced pandemic-led negative impacts in the prior-year quarter.

Revenues in the United States were up 125% year over year on a reported basis and at cc. Revenues in the Americas (non-U.S) region increased 175% (up 146% at cc). In the EMEA region, revenues rose 126% (up 106% at cc). APAC revenues increased 32% on a reported basis (up 24% at cc) and the same in Greater China improved 19% (up 9% at cc). The company’s International revenues were up 84% year over year on a reported basis (up 68% at cc).

Channel-wise, wholesale revenues were up 111% year over year (up 102% at cc). Revenues in the company’s direct-to-consumer business surged 97% (up 90% at cc), while digital revenues advanced 25% (up 20% at cc).

Adjusted gross margin expanded 260 basis points (bps) to 56.7%, including a 30-bps gain from acquisitions.

Adjusted operating income increased 164% (up 160% at cc) year over year to $148 million, while adjusted operating margin expanded 2820 bps to 6.8%. Adjusted operating income included acquisition-related contributions of 110 bps.

V.F. Corporation Price, Consensus and EPS Surprise

V.F. Corporation Price, Consensus and EPS Surprise
V.F. Corporation Price, Consensus and EPS Surprise

V.F. Corporation price-consensus-eps-surprise-chart | V.F. Corporation Quote

Segmental Details

Revenues in the Active segment rose 128% to $1,302.1 million (up 120% at cc). The Outdoor segment reported revenues of $617.8 million, up 81% year over year (72% growth at cc). Revenues in the Work segment skyrocketed 69% year over year (up 66% at cc) to $274.7 million.

Financial Details

V.F. Corp ended the first quarter with cash and cash equivalents of $1,274.9 million, long-term debt of $4,726.2 million and shareholders’ equity of $3,274 million. Inventories were down 13% year on year, amounting to $1,216.8 million.

For the three months ended June, 2021, the company generated operating cash flow of $81 million. The company returned $192 million to shareholders through dividend payouts.

The company declared a quarterly cash dividend of 49 cents per share, payable Sep 20, 2021, to shareholders of record as on Sep 10.

As part of its liquidity-preservation actions amid the coronavirus outbreak, V.F. Corp previously suspended its share-repurchase program on a temporary basis. Currently, it has $2.8 billion remaining under its current share-repurchase authorization.

Other Updates

V.F. Corp continues to adjust its business operations per the government guidelines associated the COVID-19 pandemic. Although majority of the company’s supply chain are currently operational, the company has been witnessing isolated product delays, as suppliers continue to comply with local health advisories. During the first quarter, resurgence of pandemic-led lockdowns in some countries caused manufacturing capacity constraints. Port delays, equipment availability and other logistics challenges have also been a drag. The company is working with its suppliers to minimize disruptions. The company’s distribution centers are operating in accordance with government guidelines to maintain safety and health protocols.

Outlook

The company updated its outlook for fiscal 2022, considering no material disruptions from the pandemic, government action and regulations. It expects revenues of $12 billion up from the prior expectation of $11.8 billion. The revised revenue outlook reflects year-on-year growth of at least 30%. The guidance includes $600 million of revenue contribution from the Supreme brand. The Zacks Consensus Estimate for revenues in fiscal 2022 is currently pegged at $11.9 billion.

On a segmental basis, the company now expects revenue growth of 24-26% for Outdoor, 37-39% for Active and 16-18% for Work segments. International revenues are anticipated to rise 25-27% in fiscal 2022. Region-wise, revenues are expected to increase 29-31% in EMEA, 18-20% in APAC and 28-30% in the Americas (non-U.S.) regions. Moreover, the company predicts direct-to-consumer revenue growth of 39-41%, including 29-31% growth in digital revenues.

The company anticipates adjusted gross margin of more than 56%, suggesting growth of more than 270 bps. It now expects adjusted operating margin of more than 13%, suggesting growth of 500 bps.

V.F. Corp anticipates adjusted earnings per share of $3.20, up from the prior expectation of $3.05. The bottom-line view includes contribution from the Supreme brand of nearly 25 cents. The Zacks Consensus Estimate for earnings in fiscal 2022 is currently pegged at $3.09.

The company expects to generate adjusted operating cash flow of more than $1 billion in fiscal 2022. Moreover, it expects an effective tax rate of 15% and capital expenditures of $350 million.

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