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V.F. Corp (VFC) Q4 Earnings & Sales Top, Soft View Hurts Stock

Zacks Equity Research

V.F. Corporation VFC has posted strong fourth-quarter fiscal 2019 results, wherein the top and bottom lines surpassed estimates and improved year over year. With this, it delivered the seventh top and bottom-line beat in the last eight quarters.

Despite the robust fiscal fourth-quarter results, shares of the company dropped 5.8% during pre-market trading. Analysts attributed the decline in shares to the completion of the Kontoor Brands spin-off. Additionally, the company’s forecasts for fiscal 2020 were below analysts’ expectations. However, this Zacks Rank #2 (Buy) stock has improved 5.9% in the past three months, outperforming the industry’s 0.8% growth.

 



The company’s adjusted earnings per share of 60 cents improved 10% year over year, surpassing the Zacks Consensus Estimate of 58 cents. Earnings included contribution of 1 cent per share from acquisitions, net of divestitures and 4 cents per share of incremental investment. On a constant-dollar basis, adjusted earnings rose 4%.

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

V.F. Corp generated net revenues of $3,213 million, which increased about 6% year over year and surpassed the Zacks Consensus Estimate of $3,204 million. Constant-dollar revenues improved 9%. Excluding Kontoor Brands, revenues improved 8% and 12% at constant currency. Revenue growth can be attributed to continued strength in the company’s largest brands, and international and direct-to-customer businesses along with robust Active, Outdoor and Work segments.
 
Adjusted gross margin expanded 30 basis points (bps) year over year to 51.1%. This included a 70-bps negative impact of Kontoor Brands.
 
Adjusted operating income dipped 5% to $313 million. Excluding Kontoor Brands, adjusted operating income improved 3%. Adjusted operating margin contracted 110 bps to 9.7%, including a 70-bps impact of Kontoor Brands. Notably, adjusted operating income included a $7-million contribution from acquisitions, net of divestitures.

Segmental Details

Revenues at the Active segment grew 7% to $1,142.3 million (up 10% on a constant-dollar basis).
 
The Outdoor segment reported revenues of $1,001.3 million, which improved 13% year over year (up 17% in constant dollars).
 
Revenues at the Work segment rose 2% (up 4% at constant currency) to roughly $453 million.

The Jeans segment reported revenues of $597.3 million, reflecting a decrease of 4% year over year (down 1% on a constant-dollar basis).

Other revenues declined 6% to $19.1 million on both reported and constant-dollar basis.
 
Financial Details
 
V.F. Corp ended fiscal 2019 with cash and cash equivalents of $543 million, long-term debt of $2,115.9 million, and shareholders’ equity of $4,298.5 million. In fiscal 2019, it generated cash from operating activities of $1,664.2 million. Adjusted cash flow from operations reached nearly $1.8 billion.

During the fiscal year, the company returned more than $900 million to shareholders via dividends and share repurchases.

Further, management announced a quarterly dividend of 51 cents per share, which is payable on Jun 20, 2019, to its shareholders of record as of Jun 10.
 
Outlook
 
V.F. Corp issued an optimistic view for fiscal 2020. It expects revenues to be about $11.7-$11.8 billion, which represents 5-6% growth from the results, excluding Kontoor Brands. In constant dollars, revenues are estimated to increase 7-8% in fiscal 2020, which also excludes the impact of acquisitions net of divestitures.

On a segmental basis, the company expects revenue growth of 4-5% for Outdoor (5-6% in constant dollars), 6-7% for Active (9-10% in constant dollars) and 3-5% for Work (4-6% in constant dollars) segments. V.F. Corp expects International revenues to grow 4-6% (7-9% at constant currency). Revenues for the direct-to-consumer business are expected to increase 9-11% (10-12% at a constant-dollar basis). The company estimates digital revenue growth of nearly 25%.
 
Adjusted gross and operating margins are anticipated to increase nearly 60 bps each to 54% and 13.7%, respectively. Management now envisions adjusted earnings per share of $3.30-$3.35, indicating growth of 15-17% from the year-ago period  (17-19% at constant currency).

Further, V.F. Corp expects cash flow from operations to be at least $1.3 billion in fiscal 2020. The effective tax rate is expected to be 15-15.5%. Moreover, capital expenditure is estimated to be slightly lower than $400 million for the fiscal year.

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