Outdoor and lifestyle apparel and footwear giant VF Corporation reached pre-pandemic revenue levels one quarter ahead of initial expectations, with total revenue leaping 104 percent, or up 96 percent on a constant-currency basis, to $2.2 billion. The owner of Vans, Timberland, Dickies, The North Face and most recently Supreme reeled in $324.2 million in net income.
In a Nutshell: However, given ongoing supply chain disruption, VF Corporation’s chief financial officer Matt Puckett indicated that the company will spend more than $35 million in incremental expedited freight charges in 2021.
“Essentially every link in the supply chain has been impacted to varying degrees over the last 18 months,” said Puckett in a Wall Street conference call. “And we’re not immune to this, we believe we’ve managed these challenges, relatively better than most. Our teams remain focused on delivering the products to satisfy increasing demand signals in the most cost-effective and efficient way. Some of the actions include using air freight, and other means of expedited shipping and dual sourcing where appropriate.”
In recent weeks, as Delta-variant-fueled coronavirus outbreaks have hit key sourcing countries with lower vaccination rates, VF has dealt with temporary factory lockdowns in Vietnam and Bangladesh.
“For us, it’s generally weeks, certainly not months, but we are seeing some delays in the supply chain, given the environment in Southeast Asia in particular,” Puckett said. “Fortunately, by and large, most of our factory base is operational—not 100 percent, but most of it is operational.”
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VF Corp. CEO Steve Rendle said the company “sees an opportunity to capture share” with the inclusion of air freight and other expedited shipping capabilities.
“Job one is really fill the initial order demand—we did see additional demand come in to our fall order books that’s reflected in our outlook,” Rendle said. “And within that, there are some additional goods to serve as upside demand. It’s not going to be an exceptional amount, but we are really playing to win.”
Total inventories were down 13 percent to $1.2 billion compared with $1.4 billion in the same period last year.
Gross margin increased 360 basis points (3.6 percentage points) to 56.5 percent; on an adjusted basis, gross margin increased 260 basis points (2.6 percentage points) to 56.7 percent including a 30-basis-point (0.3 percentage point) positive impact from acquisitions. The acquisitions cancelled out the 30-basis-point headwind from a more challenging logistics and freight environment.
Operating margin on a reported basis was 9.2 percent. Adjusted operating margin increased 2820 basis points (28.2 percentage points), including a 110-basis point (1.1-percentage-point) positive impact from acquisitions, to 6.8 percent.
For the end of the first quarter, cash and cash equivalents totaled $1.27 billion. Over the past quarter, VF has cut its long-term debt load to $4.7 billion from $5.7 billion at the close of the company’s fourth quarter.
VF increased its full-year fiscal 2022 outlook from initial revenue growth estimates of $11.8 billion to at least $12 billion, reflecting growth of at least 30 percent, including an approximate $600 million contribution from the recently acquired Supreme brand. Excluding Supreme, the growth would be approximately 25 percent, and up 9 percent on a two-year basis.
By segment, Outdoor revenue is now expected to increase between 24 percent and 26 percent versus the previous expectation of a 23 to 25 percent increase. Active revenue is now anticipated to jump between 37 percent and 39 percent versus the previous expectation of a 34 to 36 percent increase. Work revenue is now projected to improve between 16 and 18 percent, over initial expectations of a 10 to 12 percent increase.
Adjusted gross margin is expected to exceed 56 percent, which represents an estimated increase of more than 270 basis points (2.7 percentage points). Adjusted operating margin is now expected to increase more than 500 basis points (5 percentage points) to more than 13 percent, versus the previous expectation of approximately 12.8 percent.
Adjusted earnings per share is expected to be at least $3.20, including an approximate 25 cents contribution from the Supreme brand, ahead of initial expectations of $3.05.
Other full year expectations include adjusted cash flow that exceeds $1 billion and capital expenditures of approximately $350 million.
Net Sales: Total revenue increased 104 percent, or up 96 percent on a constant-currency basis) to $2.2 billion. Excluding acquisitions, organic revenue increased 90 percent (up 83 percent in constant dollars).
On a constant-currency basis, active segment revenue increased 120 percent to $1.25 billion, including a 102 percent increase in Vans brand revenue and a 26-percentage-point revenue growth contribution from acquisitions. Outdoor segment revenue jumped 72 percent to $587.5 million including a 83 percent increase in The North Face brand revenue and a 63 percent boost in Timberland brand revenue. Work segment revenue soared 66 percent to $269.7 million, including a 58 percent increase in Dickies brand revenue.
International revenue increased 68 percent in constant dollars, including a 10-percentage-point revenue growth contribution from acquisitions. Europe revenue doubled 106 percent; Greater China revenue grew 9 percent, including a 12 percent jump for Mainland China.
Direct-to-consumer revenue soared 90 percent on a constant-currency basis, including a 27-percentage-point revenue growth contribution from acquisitions. Digital revenue jumped 20 percent in constant dollars versus the prior year, including a 29-percentage-point revenue growth contribution from acquisitions.
Excluding acquisitions, organic digital revenue increased 72 percent versus the first quarter two years ago.
Wholesale revenue jumped 102 percent in the quarter on a constant-currency basis.
Net Earnings: VF Corp generated net income of $324.2 million in the first quarter, well ahead of the $285.6 million loss the brand house endured in the year-ago period.
Earnings per share was 39 cents, while adjusted earnings per share from continuing operations increased 148 percent (up 144 percent in constant dollars) to 27 cents, including a 7-cent-per-share contribution from the Supreme acquisition.
Operating income from continuing operations on a reported basis was $203 million. On an adjusted basis, operating income from continuing operations increased 160 percent in constant dollars to $148 million, including a $32 million contribution from acquisitions.
CEO’s Take: Rendle sees the biggest opportunity in the Vans brand, where the company is taking orders four to five months out due to high demand in early prep for the 2021 holiday season.
“Demand trends are encouraging, and we’re set for back-to-school with the inventory required,” Rendle said. VF has the “ability to chase back into and replenish that inventory if we see an outsized sell-through consistent with what we see here today,” he added.