As expected, VF took a hit in the fourth quarter due to the coronavirus, but the company said it quickly implemented a plan to mitigate the impact and ensure near-term liquidity, all while prioritizing the health and safety of its staff. It has begun reopening its stores, and now expects all stores to be reopened globally by the mid-calendar year 2020.
In a Nutshell: The outbreak of the coronavirus pandemic moved VF to modify business operations, from temporarily closing stores to instituting travel bans. It also took proactive actions to advance its Enterprise Protection Strategy, which includes temporary base pay reductions for the executive team, a $3 billion bond offering to provide a cash buffer for near-term liquidity, and the divestiture of the apparel giant’s occupational workwear business to bring in more cash. To date, VF said it has $3 billion of cash on hand and about $2.2 billion available under its revolving credit facility.
VF has since reopened its retail stores in its Asia Pacific region, including Mainland China. “While retail store traffic has improved recently, it remains down significantly compared with the prior year,” the company said.
VF has also started a phased reopening of its retail stores in its Europe, Middle East and Africa region, and is prepared to start a similar approach for North American stores, subject to the guidance of local authorities. E-commerce remains in operation.
Net Sales: Net revenues for the quarter ended March 28 fell 10.8 percent to $2.10 billion from $2.36 billion, with the decrease mostly due to lower consumer demand connected with the coronavirus outbreak and temporary store shutdowns as mandated by local authorities.
Gross margin for the period fell 150 basis points to 53.1 percent. That was driven by elevated promotional activity to clear excess inventory, but was partially offset by favorable mix shift toward higher margin businesses.
The company said it expects all of its retail stores to be open by mid-calendar 2020.
“COVID-19 has also impacted some of VF’s suppliers, including third-party manufacturers, logistics providers and other vendors. At the time, many of VF’s facilities continue to manufacture and distribute products globally in a reduced capacity. VF is actively monitoring its supply chain and implementing mitigation plans,” the company said on Friday.
Earnings: The company posted a net loss of $483.8 million, or $1.22 a diluted share, versus net income of $128.8 million, or 32 cents, in the year-ago period. The quarter’s results included a loss from discontinued operations, its occupational workwear business and the spin-off a year ago of its jeans business that now operates under the name Kontoor Brands Inc. On an adjusted basis, earnings per share fell 69 percent in constant dollars to 10 cents.
Wall Street was expecting adjusted diluted EPS of 13 cents on revenues of $2.31 billion.
The company said it wasn’t able to provide any guidance for full-year fiscal 2021 because of the uncertainty of the duration and severity of COVID-19. VF expects first-quarter fiscal 2021 revenues to be “down slightly more than 50 percent,” and full-year fiscal 2021 “free cash flow to exceed $600 million.”
For the year, the company reported a decline of 46.1 percent in net income to $679.4 million, or $1.70 a diluted share, on a 2.2 percent increase in net revenues to $10.49 billion.
CEO’s Take: “From the early days of the outbreak, VF has taken a people-first approach in our COVID-19 response, prioritizing the health and safety of our people, while also protecting their financial well-being. As we’ve implemented measures to care for and protect our people, we’ve also taken several key actions to advance our Enterprise Protection Strategy,” Steve Rendle, chairman, president and CEO, said. “These prudent actions, most of which have been precautionary, have helped us preserve liquidity and given us more flexibility to manage our global business operations through the prolonged crisis. Moving forward, we’re committed to using this moment to set VF and our brands up for the next successful chapter in our 121-year history.”
