Despite volatile headwinds from Covid including temporary store closures and isolated supply chain disruptions, VF Corp. said it is navigating the challenges and remains focused on building a purpose-led company.
In a Nutshell: As it continues to monitor the coronavirus pandemic, the parent to brands including Icebreaker, Smartwool and Kipling said the “majority” of its supply chain is “currently operational.”
“Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays,” it added. “VF is working with its suppliers to minimize disruption.” Distribution centers are running with safety protocols in place and in compliance with government mandates, it said.
During the quarter, most California stores closed at the end of Q3—primarily Vans—have since reopened. Less than 5 percent remain closed at the end of the Q4. In the Europe, Middle East and Africa region (EMEA), about 60 percent of stores were closed at quarter’s end, and about 20 percent of stores are currently closed. Nearly all of VF’s owned retail stores in the Asia Pacific region were open during the quarter and remain open, it said.
Despite Covid’s disruption, VF teams stuck to executing their plans throughout the year while the company invested in brands to foster growth, CEO Steven E. Rendle said in a Wall Street conference call. VF also focused on driving inorganic growth to evolve its portfolio, with its Supreme purchase illustrating this mindset. The acquisition will “deliver significant value creation for VF shareholders in the years to come,” Rendle said.
Related Stories
Rendle said digital technology teams developed home-grown solutions to enhance VF’s e-commerce platform, and buy online, pick-up in-store, ship-from-store, and reserve online contributed $50 million in incremental revenue during the year. These omnichannel services gave customers shopping options while enabling VF to make use of its store-based inventory.
A central consumer data platform helps VF brands understand consumers “more deeply and engage them in more meaningful and personal ways,” Rendle said.
VF leveraged new technologies and processes to further digitize its go-to-market strategy, including “advancements in 3D design in development, virtual product reviews and digital printing capabilities that shorten production calendars and accelerate our ability to flow newness and innovation.”
The multi-year Project Enable initiative evolves VF’s organizational design, ensuring the Denver company has the right capabilities, resources and talent in place for future success. Rendle said Project Enables both upskills and reskills some of its employees with a focus on digital.
“Project Enable will help us accelerate our business model transformation and reduce our global cost structure by about $125 million over three years. Along with our focus on business performance, and advancing our strategy, we have remained determined to continue building a reputation as a purpose-led company that leads by example,” Rendle.
VF views China as the “leading indicator of a broader recovery in our business,” said Matt Puckett, executive vice president and chief financial officer, noting that the greater China business has reached a $1 billion milestone.
With China as the biggest growth opportunity, Puckett said VF hopes to maintain momentum and continue investments focused on its Asia strategy. A new strategic hub in Shanghai will foster VF’s transformation and ability to serve the region.
Like virtually every other apparel and retail company, VF is working to stay ahead of supply-chain disruption from ongoing port congestion, Puckett said, though volatility and related headwinds are likely to continue for the “foreseeable future.”
VF remains “opportunistic with M&A and other capital allocation alternatives, which we will explore as appropriate,” Puckett said. It’s unlikely to consider mergers or acquisitions until the second half of fiscal 2022.
Net Sales: For the fourth quarter ended April 3, which included an extra week, net revenues were up 23 percent to $2.58 billion from $2.10 billion.
By segment, Outdoor revenues rose 25 percent to $1.06 billion, Active gained 22 percent to $1.26 billion, and Work increased 23 percent to $259.5 million.
“The strength of our business was broad based, with 60 percent growth from the big four brands and acceleration for many of our emerging brands,” Puckett said, referencing Vans, The North Face, Timberland and Dickies.
VF said global revenue on a reported basis rose 13 percent for Vans, 28 percent for The North Face, 25 percent at Timberland, and 22 percent at Dickies.
Rendle said digital direct-to-consumer delivered 55 percent organic growth in the quarter. Digital sales grew over 40 percent and “accounted for nearly 30 percent of total revenue,” he said.
Gross margin for the period slipped 100 basis points to 52.1 percent, in part due to more promotions. Operating margin rose 4.7 percent.
For the full year, net revenues slipped 12 percent to $9.24 billion from $10.49 billion. Fiscal 2021 was a 53-week period.
Earnings: For the quarter, the company swung to the black, posting net income of $89.5 million, or 23 cents a diluted share, against a net loss of $483.8 million, or $1.24, a year ago. The company said its total adjusted diluted earnings per share were 27 cents.
In January last year, VF announced plans to sell its Occupational Workwear business. After the quarter ended, it inked an agreement to sell the group. For the current quarter’s results and excluding 7 cents a diluted share for discontinued operations including the workwear group, earnings per diluted share for continuing operations were 16 cents.
Wall Street was expecting adjusted diluted EPS of 29 cents on revenue of $2.5 billion.
For the full year, VF said it expects adjusted EPS of $3.05 on forecasted revenue of $11.8 billion, which includes an estimated $600 million from Supreme.
By segment, the company said Outdoor revenue is expected to rise between 23 percent and 25 percent, Active up 34 percent and 36 percent, and Work to gain between 10 percent and 12 percent.
VF guided international revenue to increase between 25 percent and 27 percent. The EMEA region is seen rising between 29 percent and 31 percent, Asia Pacific up 18 percent and 20 percent and the Americas, non U.S., to increase 28 percent to 30 percent.
Direct-to-consumer revenue is expected to increase between 38 percent and 40 percent, and digital revenue growth is guided between 29 percent and 31 percent, it said.
For the full year, net income was down 40 percent to $407.9 million, or $1.04 a diluted share, from $679.4 million, or $1.70, a year ago.
CEO’s Take: “Early in the year we took important actions to protect our people and the enterprise, while maintaining investments to drive our transformation and accelerate organic growth. At the same time, we took bold, forward-looking actions to spark additional growth and value creation. As a result, we are exiting this year in a position of strength with broad based momentum across the portfolio,” Rendle said.