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VF Scores Revenue Gains but New Tax Act Leads to Charge on Offshore Earnings

VF Corp. said it is reinvesting roughly $100 million back into its business to make it more agile and consumer focused, even while dealing with implications of the new Tax Act on its multinational operations.

In a Nutshell: VF Corp., one of the world’s largest apparel, footwear and accessories companies, with brands including Vans, The North Face, Timberland, Wrangler and Lee, saw strong revenue gains in the fourth quarter and full year. Operating income also rose in the periods, as did gross margins.

But the transitional impact of the Tax Cuts and Job Act resulted in a provisional net charge of about $465 million for the fourth quarter and full year 2017, and an after-tax net loss for both periods. VF noted that while the Tax Act reduces the federal tax rate on U.S. earnings to 21 percent from 35 percent, it also requires U.S. companies to pay a tax on historical earnings generated offshore that have not been repatriated to the U.S.

Sales: Revenue for the fourth quarter ended Dec. 30 increased 20 percent to $3.6 billion from $3.02 billion a year earlier, including a $247 million contribution from the Williamson-Dickie acquisition that closed on Oct. 2. Excluding the Williamson-Dickie acquisition, revenue increased 12 percent, driven by broad-based strength across VF’s international and direct-to-consumer platforms, Outdoor & Action Sports coalition and Workwear businesses.

Full year 2017 revenue increased 7 percent to $11.8 billion, including an approximate 2 percentage point revenue growth contribution from the Williamson-Dickie acquisition. Jeanswear sales increased 2 percent in the quarter to $709.41 million, but fell 3 percent to $2.66 billion for the year.

Earnings: Operating income on an adjusted basis increased 6 percent to $497 million, including a $19 million contribution from the Williamson-Dickie acquisition. But the company’s after-tax net loss from discontinued operations was $17 million in the fourth quarter of 2017, which includes the operating results of the Nautica brand business, which was sold in the fourth quarter, and the gain on sale of the assets of the JanSport brand.

The company’s after-tax net loss from discontinued operations was $106 million for the full year, which includes the loss on sale of its licensing business in April, the noncash impairment charges related to the Nautica brand business, and the operating results of the licensing and Nautica brand businesses.

Jeanswear profits declined 5 percent to $97.95 million in the quarter and fell 14 percent to $421.95 million in the year.

CEO’s Take: Steve Rendle, chairman and chief executive officer, said: “VF’s fourth quarter results were stronger than we expected as growth continues to accelerate across core dimensions of our portfolio. We delivered a top-quartile total return for shareholders in 2017 and our strong performance provided us with the capacity to reinvest about $100 million back into our business. I am confident that our investments will accelerate growth and drive even stronger long-term value for shareholders. We remain in the early phase of a multi-year journey to become a purpose led, agile, consumer centric organization. I am pleased with our early progress and look forward to building on our momentum in 2018.”

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