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VF Corp Loses Nearly Half of Revenue in Q1

VF Corp took a painful hit in its first quarter, and though it beat Wall Street’s expectations, revenues nearly halved in the period.

In a Nutshell: With Mainland China first in the recovery process from the coronavirus, it made sense that VF Corp.’s sales were on the decline globally as many countries hadn’t started reopening until the middle of the company’s first quarter.

After temporary closures to stem the spread of the virus, all of VF’s retail stores in the Asia Pacific region, including Mainland China, re-opened during the first quarter. More than 90 percent of its stores in Europe, Middle East and Africa region re-opened during the quarter, although most stores in the U.K. didn’t. In North America, 75 percent of all of the company’s retail stores were open at the end of the first quarter. While additional stores have reopened since the end of the quarter, more than 175 doors were temporarily closed again because of local COVID-19 resurgences in the U.S. The company said most of its wholesale customers have reopened the majority of their stores across all operating regions.

The majority of VF’s supply chain is operational, though distribution centers have experienced intermittent disruptions.

“VF is built for this moment, which is what gives us continued confidence and optimism,” Steve Rendle, VF’s chairman, president and CEO, said. “Our financial and operational rigor, the affinity consumers have for our iconic brands, and the progress we’ve made in recent years with our digital transformation have us well-positioned to not only manage the complexities of the current environment, but to drive long-term growth.”

The CEO said first-quarter results, despite their dismal appearance, are better than expected, led in part by its digital platforms. VF’s core outdoor, active and athletic categories did well, while digital grew 81 percent in the quarter. China returned to growth one quarter earlier than expected, Rendle said.

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“We’re in the midst of unprecedented change across the retail landscape and consumer trends are changing faster than ever before,” he said. Health and wellness will continue to be a consumer trend, and “casualization will likely to be a focus in a post-COVID world,” the CEO told analysts, adding that the trends have been a core underpinning of VF’s strategy and continues to guide the company’s acquisition agenda. Recent events have accelerated what were trends before COVID-19, and will lead to a “dramatic reorganization of the consumer marketplace,” Rendle said. He also emphasized to Wall Street that VF’s “portfolio today sits at the epicenter of trends and [that VF is] poised to capitalize on these shifts.”

Both buy online and ship from store and curbside functionality are options now available at most VF stores, and the company has started to offer a deferred payment option, too.

Net Sales: For the three-month period ended June 27, VF’s net revenue fell 47.5 percent, plunging to $1.08 billion from $2.05 billion.

Gross margin fell 340 basis points to 52.9 percent, driven by promotional activity to clear excess inventory, which VF said was partially offset by a shift to higher-margin businesses. Inventories were up 2 percent in the quarter versus the same period last year.

By segment, revenue in active fell 54 percent, including a 52 percent decrease in its Vans brand revenue. The outdoor segment fell 44 percent, including a 45 percent decline in The North Face brand revenue. The work segment saw a revenue decline of 19 percent, including a 16 percent decrease in revenue for its Dickies brand.

International revenue fell 39 percent. By region, revenue in Europe was down 48 percent, while Greater China was flat, including a 5 percent increase in Mainland China.

VF said direct-to-consumer revenue fell 37 percent in the quarter, while digital revenue jumped 78 percent.

Earnings: The apparel giant swung to a net loss of $285.6 million, or 73 cents a diluted share, from net income of $49.2 million, or 12 cents, in the year-ago period. On an adjusted basis, the loss per share was 57 cents. The company’s occupational workwear segment is reported as discontinued operations following the firm’s decision earlier this year to sell the business.

VF’s first-quarter results were better than Wall Street’s consensus expectations, which was a loss of 67 cents on revenue of $980.22 million.

The company is not providing full-year guidance for fiscal 2021, but said second quarter fiscal 2021 revenues are expected to be down less than 25 percent. Full-year fiscal 2021 free cash flow is still expected to exceed $600 million, VF said Friday.

VF ended the quarter with $2.8 billion in cash and short-term investments, in addition to $2.23 billion remaining under its revolving credit facility.

Separately, the company’s board of directors declared a quarterly dividend of 48 cents per share, payable on Sept. 21, 2020, to shareholders of record on Sept. 10, 2020. VF said it intends to continue to pay its regularly scheduled  dividend, subject to board approval, and is not currently contemplating the suspension of its dividend.

CEO’s Take: “As we continue through our fiscal year, we’ll build on the strengths we’re already seeing in the core elements of our strategy, including maintaining our strong cash and liquidity position and further accelerating our digital business worldwide, especially in China,” Rendle said.