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What Helped VF Beat Wall Street Estimates in Q2

VF Corp. returned to profitability in beating Wall Street’s consensus estimates for adjusted earnings per share and revenue for the second quarter ended Sept. 26.

In a Nutshell: VF on Friday 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. VF is working with its suppliers to minimize disruption,” the apparel giant said, adding that its distribution centers are also operational where government mandates permit.

VF expects the coronavirus pandemic to drive “ongoing disruption to its business operations.”

Nearly all of VF’s retail stores in the Europe, Middle East and Africa and Asia Pacific regions, including Mainland China, remained open during the second quarter. In North America, 75 percent of all retail locations were open at the end of Q1, rising to more than 95 percent by the close of Q2, which ended on Sept. 30.

“Additional retail locations have re-opened since the end of the quarter, and currently all of VF’s North American retail stores are open. VF’s wholesale customers in APAC, North America and EMEA have re-opened almost all of their locations,” VF said.

“Our year to date results have surpassed our internal expectations across all brands, driven by digital and China, two of our key growth pillars,” said Steve Rendle, VF chairman, president and CEO.

Net Sales: Total revenues decreased 18.0 percent to $2.61 billion from $3.18 billion, marking a return to profitability after taking a painful hit in the first quarter. Fallout from Covid-19 erased nearly half of VF’s first-quarter revenue.

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Store closures and lower consumer demand drove the revenue decline. By segment, in constant dollars, active revenue fell 15 percent, including an 11 percent decrease in Vans brand revenue. The outdoor operation saw revenue down 26 percent, which included a 26 percent decline in The North Face brand revenue. VF’s Work segment revenue rose 14 percent, including an 18 percent gain in the Dickies brand revenue.

International revenue overall, in constant dollars, fell 18 percent. By region, also in constant dollars, revenue in Europe was down 20 percent, while Greater China saw a gain of 14 percent, including a 19 percent rise in Mainland China.

Direct-to-consumer revenue was down 18 percent in constant dollars, while direct-to-consumer digital revenue was up 42 percent.

Gross margin was down 340 basis points to 50.8 percent, due mostly to elevated promotional activity to clear excess inventory. Inventories for the quarter were down 10 percent versus the year-ago period, VF said.

For the half, total revenues were down 29.6 percent to $3.68 billion from $5.23 billion.

Earnings: Net income for the quarter fell 60.4 percent to $256.7 million, or 66 cents a diluted share, from $649.0 million, or $1.61, in the year-ago period. On an adjusted basis, earnings per share were 67 cents. In January, VF revealed plans to sell its occupational workwear business, which includes the Red Kap, Bulwark, Kodiak and Horace Small brands, among others, which is now classified as a discontinued operation.

For the quarter, EPS for continuing operations was 62 cents a share. Wall Street was expecting 49 cents on revenue of $2.5 billion.

For the full year fiscal 2021 outlook, VF said it expects adjusted earnings per share of at least $1.20, on a revenue forecast of $9 billion. The revenue estimate reflects a 14 percent decline on an adjusted basis, including low single-digit growth in the second half that’s driven by a return to growth in the fourth quarter. VF said it expects adjusted free cash flow to “exceed $600 million.”

VF said that it doesn’t expect any material deterioration stemming from Covid-19.

For the six months, the company posted a net loss of $28.9 million, or 7 cents a diluted share, against net income of $698.2 million, or $1.74, a year ago.

CEO’s Take: “We are beginning to see signs of stabilization and strength across all aspects of our business, supporting our decision to raise the dividend and provide a financial outlook for the balance of the year. Although uncertainties remain, investments in our digital transformation are resulting in near-term momentum and improved capabilities to emerge in an even stronger position,” Rendle said.