In a Nutshell: As the company shifts its fiscal year to end the Saturday closest to March 31 from the Saturday closest to Dec. 31, VF Corp reported a net loss in the period, weighed down by an after-tax net loss from discontinued operations, including a loss it took on the sale of the Nautica brand business recorded in the fourth quarter of 2017.
Revenue, buoyed by the addition of Williamson-Dickie to the portfolio of brands, rose strongly in the period led by a strong gain in the Outdoor & Action Sports coalition, although Jeanswear revenue fell 1 percent. Greensboro, N.C.-based VF said it saw a gross margin improvement of 20 basis points to 50.5%, as benefits from a shift toward higher margin businesses and changes in foreign currency were partially offset by the impact the acquisition of Williamson-Dickie. Changes in foreign currency positively impacted gross margin by 20 basis points.
The company reported that the transitional period impact of the U.S. Tax Act resulted in a provisional net charge of about $465 million for the fourth quarter of 2017, which was further adjusted by a $5 million benefit in the transition period. The Tax Act reduces the federal tax rate on U.S. earnings to 21 percent and moves from a global taxation regime to a modified territorial regime. As part of the legislation, U.S. companies are required to pay tax on historical earnings generated offshore that have not been repatriated to the U.S.
Sales: Revenue in the transition quarter ended March 31 increased 22 percent to $3 billion from $2.5 billion in the prior-year period, including a $233 million revenue contribution from Williamson-Dickie. Excluding the Williamson-Dickie acquisition, revenue increased 12 percent, driven by broad-based strength across VF’s international and direct-to-consumer platforms and Outdoor & Action Sports coalition, which rose 19 percent to $2 billion.
Vans brand revenue increased 45 percent and The North Face brand revenue was up 11 percent in the period. International revenue increased 27 percent, including an 8 percent growth contribution from Williamson-Dickie.
Direct-to-consumer revenue gained 34 percent, including a 5 percent contribution from Williamson-Dickie. Digital revenue jumped 61 percent, including a 13 percent contribution from Williamson-Dickie.
VF Corp. forecast revenue for the 2019 fiscal year to grow 9 percent to 10 percent to a range of $13.45 billion to $13.55 billion. By coalition, revenue for Outdoor & Action Sports is expected to increase 8 percent to 10 percent, revenue for Jeanswear is expected to be about flat compared to prior year and Imagewear revenue is expected to increase more than 35 percent.
International revenue is projected to rise 13 percent to 15 percent. By geographic region, European revenue is forecast to increase 13 percent to 15 percent, Asia Pacific revenue is expected to increase 15 percent to 17 percent, and in the Americas (non-U.S.) region, revenue is expected to increase 10 percent to 12 percent. Direct-to-consumer revenue is forecast to gain 8 percent to 10 percent, including more than 25 percent growth in digital. VF Corp. did not forecast revenue outlook for the U.S, which posted an 18 percent increase in the transitional period.
Earnings: Net income fell 21 percent in the period to $252.79 million form $209.16 million a year earlier. The company’s after-tax net loss from discontinued operations was about $8 million in the transition period, which includes an increase in the estimated loss on the sale of the Nautica brand business recorded in the fourth quarter of 2017 and the operating results of the Nautica brand business during the transition period.
Operating income on an adjusted basis increased 14 percent to $330 million from, including a $16 million contribution from the Williamson-Dickie acquisition.
CEO’s Take: Steve Rendle, chairman, president and CEO, said: “VF’s transition period results were strong as the broad-based growth acceleration that began in the second half of 2017 continued. Our core growth engines are driving strong global momentum as we begin to enter the acceleration phase of our 2021 strategy. VF is in the midst of a transformation to become a purpose-led, consumer-centric organization. We are evolving and adapting to a rapidly changing marketplace and remain committed to delivering top quartile returns for our shareholders.”