With many parts of the world operating under restrictions, VF’s workwear segment helped offset third-quarter declines that plagued its active and outdoor categories.
In a Nutshell: In North America, over 95 percent of VF’s owned retail stores were open at the beginning of the third quarter, though 15 percent temporarily closed by the end of Q3, primarily California-based Vans stores. Less than 10 percent of stores are currently closed in the region.
In the Europe, Middle East and Africa region, nearly all of VF’s owned retail stores were open at the beginning of the quarter, but about 50 percent were closed by the end of the period. Additional stores in the EMEA region have re-closed since the end of the quarter and now over 60 percent of stores are closed. VF said nearly all of its owned retail stores in the Asia Pacific region, including Mainland China, were open during the quarter and remain open.
“The majority of VF’s supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. VF is working with its suppliers to minimize disruption. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols,” it said.
One highlight in the quarter was its workwear business, and the company just launched its Dickies brand in Europe. VF acquired the family-owned, private workwear firm Williamson-Dickie Mfg. Co. in 2017. While Dickies is its best known brand, others in the group include Workrite, Kodiak and Terra.
“Our third quarter results were largely ahead of expectations despite the impact of additional Covid-19 related disruption to our business,” Steve Rendle, VF’s chairman, president and CEO, said.
In a conference call to Wall Street analysts, Rendle said “consumer engagement with our brands remain strong,” adding that the casualization trend stemming from “health and wellness will be enduring.”
“The business stabilized at the start of the third quarter,” he said, though the pandemic continues to create a challenging environment.
VF’s teams continue activate capabilities to better understand its consumer, while strengthening investments in digital, he said. While Vans and North Face already offer ship from store, they are incorporating a new feature called reserve in-store for pick up, and over the next few months will offer a “save-the-sale functionality” for items that are out-of-stock online, Rendle said. He noted changes to the Asia Pacific hub, and VF’s acquisition of streetwear brand Supreme.
Chief financial officer Scott Roe reiterated expectations that Supreme will contribute $500 million in revenue in fiscal 2022. The business is now in the integration phase, with VF largely using a “light touch approach.” He noted that there’s excitement about the brand’s future from both the VF and Supreme teams, adding, “We’re off to a great start.” He also said that while there’s a cautiousness within the wholesale channel, orders from VF’s wholesale customers remain strong.
The executives said VF possibly could return to pre-Covid peak levels by mid-2022, but much of that will depend on other factors, such as the consumer response post pandemic and the vaccination rollout process.
Net Sales: For the three months ended Dec. 26, net revenues fell 6 percent to $2.97 billion from $3.16 billion. VF said the decrease was driven by store closures and lower consumer demand due to the pandemic and related government actions and regulations.
Gross margin for the quarter fell 250 basis pints to 54.7 percent, mostly due to elevated promotional activity to clear excess inventory and the timing of foreign currency transaction activity. Operating income was $412 million, but $458 million on an adjusted basis. Operating margin was 13.9 percent.
By segment, revenue for its outdoor businesses declined 5 percent to $1.57 billion from $1.66 billion. Active revenue fell 9 percent to $1.13 billion from $1.24 billion. Revenue from its work business rose 8 percent to $270.2 million from $251.0 million.
International revenue was flat, with Europe revenue up 1 percent. Greater China revenue increased 18 percent, helped by a 22 percent gain in Mainland China.
Direct-to-consumer revenue fell 2 percent, which included a 53 percent jump in direct-to-consumer digital revenue. Inventories were down 14 percent versus levels from a year ago. For the nine months, net sales fell 21 percent to $6.66 billion from $8.39 billion.
Earnings: Net income fell 25 percent to $347.2 million, or 88 cents a diluted share, from $465.0 million, or $1.16, a year ago. Adjusted earnings per share were 93 cents.
VF bested Wall Street’s adjusted diluted EPS of 90 cents by 3 cents, but just missed on revenue expectations of $3.0 billion.
For the nine months, net income dropped 73 percent to $318.3 million, or 81 cents a diluted share, from $1.16 billion, or $2.90, in the same year-ago period.
For the full year fiscal 2021 outlook, VF guided revenue to the range of $9.1 billion to $9.2 billion, which includes $125 million of revenue from the Supreme brand. Adjusted earnings per share was estimated at $1.30, which includes a 5-cent a share contribution from the Supreme brand. The updated EPS guidance represents an increase from prior guidance of $1.20 a share. VF also said it expects adjusted free cash flow to be $650 million, up from prior expectations of more than $600 million.
CEO’s Take: “Our portfolio remains on track to return to growth in the fiscal fourth quarter and we are confident in VF’s plans to accelerate growth into fiscal 2022 and to continue advancing our business model transformation,” Rendle said. “We remain optimistic about the year ahead and look forward to improvements in our geopolitical, macroeconomic and pandemic-related situations.”
