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V.F. Corp's 2Q Earnings Surge, Revs Lag

Zacks Equity Research

V.F. Corporation (VFC) reported second-quarter 2013 adjusted earnings of $1.27 per share, which came above $1.11 earned in the year-ago quarter as well as the Zacks Consensus Estimate of $1.17.

Quarter in Detail

V.F. Corp.'s total revenue of $2,220.4 million grew 4.0% compared with $2,141.8 million recorded in the year-ago period, on the back of robust growth in Outdoor & Action Sports, international as well as direct-to-consumer revenues. However, it fell short of the Zacks Consensus Estimate of $2,260.0 million by 1.8%.

Gross margin in the quarter increased 240 basis points (bps) to 48.5% from 46.1% in the comparable year-ago quarter, due to an improvement in higher margin businesses and lower product costs. Moreover, adjusted operating margin expanded 140 bps to 9.3% from 7.9% reported in the year-ago period.

Segment Details

Revenue at Outdoor & Action Sports rose 6% from the year-ago quarter to $1,103.6 million. Continued growth momentum at the company’s The North Face and Vans brands contributed to increased revenues. Segment operating income increased 22% year over year to $100 million, while operating margin expanded 120 bps year over year to 9.1%. Management anticipates coalition revenues to increase nearly 10%, driven by strong performance of The North Face and Vans brands.

Jeanswear revenues rose 3.0% to $612 million. The rise was attributable to improved sales in the Americas region and Europe, partly offset by weaker sales in the Asia-Pacific region. Also, the company witnessed significant growth in the segment’s operating income and margin, mainly due to lower product costs and improved operating efficiencies. Segment operating income rose 17% to $109 million while operating margin increased 210 bps 17.8% in the quarter. Management anticipates revenues in this segment to increase at a mid single-digit rate for the whole year.

Imagewear revenues fell 4.0% in the quarter to $242 million due to delay in contract renewal. Moreover, operating income increased 15.0% to $35 million and operating margin at the segment increased 240 bps to 14.5% due to lower year-over-year product costs. The company anticipates revenues in the segment to grow at a low single-digit percentage rate in 2013 as against the earlier expected mid single-digit growth rate.

Revenues at Sportswear increased 14.0% to $133 million driven by growth of Nautica and Kipling brands revenues. Segment operating income increased 42.0% to $16 million, primarily due to better profitability in the coalition’s wholesale and direct-to-consumer businesses. Operating margin came in at 12.2%, expanding 240 bps. V.F. Corp expects revenues in the segment to rise about 10% from its previous expectation of high single-digit growth based on good first half 2013 results and assumption of better results in the second half of the year.

Contemporary Brands’ revenues slumped 9.0% to $99 million, due to the absence of John Varvatos brand, which was sold in Apr 2012. Operating income decreased 34% to $8 million during the quarter, while operating margin came in at 8.0%, contracting 310 bps. Excluding the John Varvatos brand, full-year revenues are expected to rise at a low single-digit percentage rate in 2013 compared with the earlier declared high single-digit growth rate.

The company’s International revenues increased 6%. The growth was largely driven by strong performances of the biggest brands in Americas, Asia and Europe. International revenues now represent 34% of V.F.Corp.’s second-quarter total revenues.

Direct-to-Consumer revenue increased 8%, driven by the addition of 35 new stores and improved contributions from The North Face, Vans and Kipling brands. The company’s total owned retail stores were 1,157 at the end of first quarter. Direct-to-consumer revenues reached 22% of V.F.Corp.’s second-quarter total revenues.

Balance Sheet

V.F. Corp. ended the quarter with cash and cash equivalents of $320.1 million and long-term debt of $1,427.8 million. The company’s shareholders equity came in at $5,184.1 million at the end of second-quarter 2013.


The board of directors of this Zacks Rank #2 (Buy) company declared a quarterly cash dividend of 87 cents per share. The dividend will be paid on Sep 20, 2013 to shareholders of record as of Sep 10, 2013.

Looking into 2013

The company continues to expect its fiscal 2013 revenues to increase 6% to $11.5 billion. Gross margins are anticipated to expand by more than 100 bps, given the company’s strong performance in the first half of 2013.

Based on robust gross margin growth, V.F. Corp. projects adjusted earnings for fiscal 2013 to rise 10 cents to $10.85 per share, compared with the previous forecast of $10.75.

Other Stocks to Consider

Other stocks in the apparel industry that are worth a look include Columbia Sportswear Company (COLM), Hanesbrands Inc. (HBI) and G-III Apparel Group Ltd. (GIII). Columbia Sportswear and Hanesbrands carry a Zacks Rank #1 (Strong Buy), while G-III Apparel carries a Zacks Rank #2 (Buy).

Read the Full Research Report on VFC

Read the Full Research Report on COLM

Read the Full Research Report on HBI

Read the Full Research Report on GIII

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