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How VF’s Big Bet on Footwear and Outdoor Paid Off

Following the spinoff of VF Corp.’s denim business, the company is now hyper-focused on footwear and the great outdoors, which includes active and work wear.

Wednesday’s first-quarter results, which bested Wall Street’s consensus estimates, represents the company’s new chapter following a relocation to Denver, Colo., for its corporate headquarters, and the spinoff of its Lee and Wrangler jeans brands to Kontoor Brands.

In a Nutshell: Steve Rendle, chairman, president and chief executive officer, said, “Our first quarter results demonstrate the power of VF’s evolved portfolio and our progress along our journey to become a purpose-led, performance-driven, value-creating enterprise anchored in our commitment to be more consumer-minded and retail-centric in everything we do.”

The company completed its denim spinoff on May 23. That spinoff also included the Rock & Republic brand and the VF Outlet business. Brands under the current VF umbrella include Vans, The North Face, Timberland and Dickies. VF’s portfolio offers consumers products in apparel, footwear and accessories.

For the quarter, VF said gross margin rose 140 basis points to 54.4 percent. Operating income on an adjusted basis rose 23 percent to $163 million, while operating margin, also adjusted, was up 100 basis points to 7.2 percent.

Net Sales: For the first quarter ended June 29, the company said net sales were up 6.3 percent to $2.27 billion from $2.14 billion. Revenues on an adjusted basis, excluding acquisitions and divestitures, rose 9 percent, or up 11 percent in constant dollars. The increase was driven by VF’s largest brands, its international and direct-to-consumer platforms, as well as strength from its active and outdoor segments.

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VF’s active business saw revenues rise 8 percent, helped by a 20 percent jump in Vans brand revenues, while the outdoor segment revenues were up 7 percent, boosted by a 9 percent increased in The North Face brand revenue. In its overseas business, international revenue rose 2 percent, but was up 4 percent excluding acquisitions and divestitures. China revenues increased 21 percent for the quarter. The company also said direct-to-consumer revenue rose 14 percent, while digital revenue was up 24 percent.

Earnings: Net income for the period was $49.2 million, or 12 cents a diluted share, versus $160.4 million, or 40 cents, a year ago. On an adjusted basis, diluted earnings per share was 30 cents. That represented a 69.3 percent decline, but was due to losses from discontinued operations, including costs connected to its office relocation and certain strategic business decisions in South America. When comparing just continuing operations, income for the quarter rose 58.5 percent to $97.2 million, or 24 cents a diluted share, from $61.4 million, or 15 cents, in the same year-ago quarter.

After adjustments for discontinued operations, VF’s diluted EPS of 30 cents on revenue of $2.27 billion bested Wall Street’s consensus estimate of 29 cents on revenues of $2.24 billion.

The company expects full year fiscal 2020 adjusted revenue from continuing operations to be $11.8 billion, representing an estimate of 6 percent growth for the year, and slightly higher than its previous estimate of $11.7 billion. The company forecasted adjusted EPS from continuing operations in the range of $3.32 to $3.37.

CEO’s Take: “As a result of our strong results and increased confidence in the full year, we are raising our fiscal 2020 outlook, including an additional $20 million of investments aimed at accelerating growth and value creation in fiscal year 2020 and beyond,” Rendle said.