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VF Corp. Scores Solid Gains as it Prepares Denim Spinoff

VF Corp. posted strong profit and sales gains in its second quarter despite the costs associated with the planned move of the company’s headquarters and the expenses VF Corp. has incurred as it spins off of its jeans business.

In a Nutshell: In reporting upbeat quarterly results on Friday showing substantial gains in income and revenue, VF Corp. said transaction and deal-related costs tied to the planned spinoff of its jeans business—which includes the Wrangler and Lee brands—totaled roughly $53 million in the second quarter of fiscal 2019 and $72 million for the first six months of the fiscal year ending in March. VF Corp. said the figures also account for estimated losses on the sale.

Additionally, the company said it expects to incur roughly $11 million in costs in the first half of next year for the planned relocation of its global headquarters and certain brands to Denver. The new jeans company will be based at VF Corp.’s current headquarters in Greensboro, N.C.

Despite the losses, the company forecast full year fiscal 2019 revenue to increase at least 11 percent, to $13.7 billion compared to the previous expectation of revenue between $13.6 billion and $13.7 billion. The updated revenue outlook includes the negative impact of the expected divestitures of the Reef brand and Van Moer business.

By segment, revenue for Outdoor is now expected to be up between 7 percent to 8 percent versus the previous estimate of a 6 percent to 8 percent increase. Revenue for Active is now expected to increase between 14 percent and 15 percent versus the previous expectation of a 13 percent to 14 percent increase, and revenue for Work is still expected to increase more than 35 percent. Revenue for jeans is now expected to decline between 1 percent and 2 percent versus the previous revenue estimate, which was in line with the prior year.

Direct-to-consumer revenue is now projected to rise 12 percent to 14 percent versus the previous expectation of an 11 percent to 13 percent increase. Digital revenue is still expected to increase more than 30 percent.

Sales: Revenue for the second quarter ended Sept. 29 increased 15 percent, to $3.9 billion, driven by VF’s largest brands, international and direct-to-consumer platforms, and Active and Work segments. Revenue in the quarter included a $324 million revenue contribution from the Williamson-Dickie, Icebreaker and Altra acquisitions.

Active segment revenue rose 19 percent, including a 26 percent increase in Vans brand revenue. Outdoor segment revenue was up 6 percent, including a 5 percent gain in The North Face brand and 5 percent growth contribution from acquisitions.

International revenue increased 13 percent, including a 9 percent growth contribution from acquisitions. Direct-to-consumer revenue rose 19 percent, including a 6 percent point contribution from acquisitions. Digital revenue increased 48 percent, with a 17 percent contribution from acquisitions.

Earnings: Net income in the quarter rose 31 percent, to $507.12 million, compared to net income of $386.14 million in the year-ago period. Operating income in the period increased 19 percent, to $690 million, including a $40 million contribution from acquisitions. On an adjusted basis, operating income increased 19 percent, to $690 million, including a $40 million contribution from acquisitions.

Operating margin declined 10 basis points, to 16.9 percent. Adjusted operating margin increased 60 basis points, to 17.7 percent. Adjusted operating margin, excluding acquisitions, increased 100 basis points to 18.1 percent.

CEO’s Take: Steve Rendle, chairman, president and CEO, said: “VF’s second quarter results were strong, driven by our core brands, the company’s international and direct-to-consumer platforms, and our work businesses. As we move into the second half of our fiscal year, we are confident in our growth engines as evidenced by the increase in both our dividend and full year outlook. We continue to invest behind our strategic growth priorities and the actions we are taking continue to advance our journey toward transforming VF into a purpose-led, performance-driven, consumer centric organization focused on and committed to delivering superior returns to shareholders.”

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