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VF Raises 2020 Outlook With 9 Brands Up for Sale

A “mixed holiday season” might have curtailed sales and earnings, but a consolidating VF Corp. seems to be on a less-is-more track.

In a Nutshell: Two days after announced it was exploring strategic alternatives for some of its occupational Work brands and its first holiday season after spinning off Wrangler and Lee into Kontoor Brands, VF Corp. squeezed out gains in income and revenue in its fiscal third quarter.

On Thursday, VF also updated its 2020 fiscal year outlook, with adjusted revenue now expected to be approximately $11.75 billion, reflecting growth of about 5 percent. Excluding the occupational Work business, consisting of nine of the unit’s brands and businesses–Red Kap, VF Solutions, Bulwark, Workrite, Walls, Terra, Kodiak, Work Authority and Horace Small–full year fiscal 2020 adjusted revenue is expected to increase by approximately 6 percent.

Dickies and Timberland Pro, seen as VF’s top workwear brands, are not included in VF’s review process and would remain in the company’s work portfolio.

By segment, revenue for Outdoor is now expected to increase approximately 4 percent compared to the previous expectation of an increase of around 5 percent. Revenue for Active is now seen growing about 8 percent compared to the previous expectation of an increase of approximately 8 percent to 9 percent.

Revenue for Work is now forecast to rise around 1 percent compared to the previous expectation of an increase of approximately 2 percent to 3 percent. Excluding the occupational Work business, Work revenue is expected to gain about 3 percent.

International revenue is now projected to rise approximately 6 percent compared to the previous expectation of an increase of approximately 4 percent to 5 percent.

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Direct-to-consumer revenue is forecast to increase around 9 percent to 10 percent, including about 20 percent growth in digital. This compares to the previous expectation of an increase of approximately 11 percent to 12 percent, including about 25 percent growth in digital.

Adjusted gross margin is still expected to be 54.1 percent, which represents an estimated increase of 80 basis points. Adjusted operating margin is still expected to be 13.8 percent, which represents an estimated increase of approximately 90 basis points.

Adjusted earnings per share is now expected to be approximately $3.30, reflecting growth of approximately 15 percent. This compares to the previous expectation of adjusted earnings per share in the range of $3.32 to $3.37, reflecting growth of 16 percent to 18 percent (19 percent to 21 percent on a constant dollar basis excluding the impact of acquisitions and divestitures).

Sales: Revenue for the third quarter ended Dec. 28 increased 5 percent to $3.4 billion, driven by VF’s largest brands and its international and direct-to-consumer platforms. Excluding the occupational Work business, for which VF said this week it was commencing a review of strategic alternatives, revenue was up 6 percent.

Active segment revenue rose 8 percent, including a 12 percent increase in Vans brand revenue. Outdoor segment revenue increased 3 percent, including an 8 percent increase in The North Face brand revenue.

International revenue gained 8 percent, with Europe up 4 percent and China rising 30 percent. Direct-to-Consumer revenue increased 7 percent and digital revenue rose 16 percent.

Earnings: Net income rose 0.3 percent to $465 million in the three months. Operating income rose 11 percent to $579 million. Excluding the occupational Work business, adjusted operating income gained 14 percent.

Gross margin increased 110 basis points to 55.7 percent, primarily driven by favorable mix shift toward higher-margin businesses and timing of net foreign currency transaction gains. Operating margin gained 100 basis points to 17.1 percent.

CEO’s Take: Steve Rendle, VF’s chairman, president and CEO, said: “Our third quarter performance was strong and our year-to-date results are at the high end of our long-term growth objectives. Despite a mixed holiday season in the U.S., we’re on track to deliver solid performance and are well positioned for continued growth and value creation in fiscal year 2021.”