Global apparel giant VF Corporation (VFC) reported record revenues and gross margin for the fiscal year ending Jan. 3, 2015, and said it is about two years ahead of its five-year plan.
However, operating income and earnings fell by two-thirds as the company took an almost $400 million asset impairment charge on its contemporary sportswear brands.
For the fourth quarter, sales just missed consensus estimates, while earnings per share, adjusted for the impairment charge, were in line with Wall Street expectations.
Fourth quarter revenues rose 9 percent to $3.58 billion, driven by strong growth in the Outdoor & Action Sports, international and direct-to-consumer businesses that more than made up for challenging environment in sportswear and jeanswear.
Full-year 2014 revenues increased 8 percent to a record $12.3 billion. Inclusion of a 53rd week added about 1 percentage point of growth in 2014.
Fourth quarter revenues for the Outdoor & Action Sports coalition, the business that includes The North Face, Vans, Timberland, Kipling, Lucy and Napapijri brands, increased by 13 percent to $2.2 billion.
Full year Outdoor & Action Sports revenues also increased by 13 percent, with revenues for The North Face brand up 11 percent to $2.3 billion, and for the Vans brand up 17 percent, firmly establishing its place as VF’s second $2 billion brand. Full year Timberland brand revenues rose 13 percent to $1.8 billion.
Fourth quarter revenues in the jeanswear coalition, which includes Lee and Wrangler, increased by 3 percent to $755 million. In 2014, global Jeanswear revenues were flat at $2.8 billion.
Sportswear fourth quarter revenues increased by 4 percent to $215 million. Nautica revenues were flat with a low-teen percentage rate increase in the direct-to-consumer business being offset by a high single-digit decline in wholesale sales. The Kipling brand’s U.S. business, which is included in the Sportswear Coalition numbers, achieved a 25 percent increase in revenues compared with the same period last year. For the year, Sportswear coalition revenues were up 4 percent.
Globally, the Kipling brand grew 13 percent in the fourth quarter, making it the company’s fastest growing brand.
The company’s Contemporary Brands Coalition — which includes 7 For All Mankind, Ella Moss and Splendid —suffered a 1 percent decline in fourth quarter revenues to $107 million.
International revenues in the fourth quarter grew 5 percent, or 13 percent on a currency neutral basis.
Direct-to-consumer revenues grew 22 percent in the fourth quarter with strong double-digit increases in all regions of the world and growth in every VF brand with a retail format. Seventy-five stores were opened during the fourth quarter bringing the total number of VF owned retail stores to 1,401. Direct-to-consumer revenues continued to grow its share of the total VF business, increasing to 26 percent of total revenues in 2014 compared with 24 percent in 2013.
Gross margin improved 80 basis points to a record 49 percent in the fourth quarter driven primarily by the continuing shift of revenue mix toward higher margin businesses. For the full year, they improved 70 basis points to a record 48.8 percent.
SG&A increased by 20 basis points to 32.9% of revenues. Full-year SG&A as a percent of revenues rose 30 basis points to 33.9%, mostly due to the change in classification of retail concession fees.
On an adjusted basis, operating income increased 14 percent to $578 million from the prior year period. However, a $396 million pre-tax, noncash impairment charge (equivalent to $0.70 per share) was recorded related to the under-performing contemporary women’s apparel brands. On a GAAP basis, operating income fell 67 percent to $182 million in the quarter.
About the writedown, CFO Bob Shearer said on the quarterly earnings conference call, “While management continues to view these brands as compelling and complementary within the context of VF’s portfolio, it concluded that an impairment charge was required because the fair values of these brands were below their respective carrying values.”
Full-year operating income on an adjusted basis grew 11 percent to $1.8 billion, but fell by 38 percent on a GAAP basis to $1.4 billion due to the asset impairment charges.
Adjusted earnings per share increased 20 percent to $0.98 per share compared with $0.82 per share during the same period last year. Including impairment charges, earnings per share fell 66 percent to $0.28.
For the full year, adjusted earnings per share increased 14 percent to $3.08 per share compared with $2.71 per share in 2013. On a GAAP basis, full year earnings per share fell 12 percent to $2.38.
“Our powerful brands and the competitive advantage of our business platforms combined with our relentless focus on operational excellence delivered another year of strong returns for our shareholders,” said Eric Wiseman, VF chairman, president and CFO.