VF Corp, the parent company of Vans, The North Face, and Reef announced “record first quarter revenues and earnings thanks in part to their acquisition of Timberland and Smartwool, but also because their outdoor group (the only part of the company we really even care about) did really, really, well.
Global revenues of The North Face® brand increased 14% during the quarter, with double-digit growth in both the Americas and internationally. Momentum continued in The North Face® brand’s direct-to-consumer business, where revenues grew more than 20% in the quarter. The Vans® brand achieved another quarter of very healthy growth, with global revenues rising 25% and strong increases in both its Americas and international businesses. The Vans direct-to-consumer business demonstrated solid results, with revenues rising by 18%.
Boom. As usual, Reef did not get so much as a mention in the quarterly numbers, and only showed up in the list of companies VF owns. That must be so motivating for the people at Reef. For the official word follow the jump. If you’re interested in the hard numbers click here.VF Announces Record First Quarter Revenues and Earnings, Driven by Strong Organic Growth and Timberland Acquisition
Revenues rise 31%, with organic growth of 12%; Timberland adds $356 million to revenues
Double-digit revenue increases in all coalitions (constant dollars)
International business posts 15% organic revenue growth (constant dollars)
Direct-to-consumer business achieves 16% organic revenue growth
Adjusted EPS increases to record $1.94 ($1.91 on a GAAP basis)
2012 guidance raised by $0.15 per share to $9.45 ($9.42 on a GAAP basis)
GREENSBORO, N.C.–(BUSINESS WIRE)–Apr. 27, 2012– VF Corporation (NYSE: VFC) today announced results for its first quarter ended March 31, 2012. All per share amounts are presented on a diluted basis. All references to “organic” financial data exclude the Timberland® and Smartwool® brands (“Timberland”), acquired on September 13, 2011. “Adjusted amounts” refer to non-GAAP measures that exclude Timberland acquisition-related expenses and the anticipated gain on the sale of John Varvatos Enterprises, Inc. as described in the “Adjusted Amounts” paragraph at the end of this release.
“Our excellent first quarter performance spotlights our success in driving brand growth across our portfolio and the ability of VF’s diversified business model to deliver healthy, sustainable growth on both the top and bottom lines,” said Eric Wiseman, VF Corporation Chairman and Chief Executive Officer. “Our momentum is strong, and we are excited about the prospects for delivering another year of record revenues and earnings to our shareholders.”
First Quarter Results Summary
Revenues rose 31% to $2,556 million from $1,959 million in 2011, with Timberland adding $356 million to revenues. Organic revenue growth in the quarter was 12%, slightly stronger than anticipated due in part to earlier shipments and stronger sales of seasonal products. All VF coalitions achieved solid revenue growth in the quarter, with the strongest increase in Outdoor & Action Sports, where total revenues rose 60% and organic growth was 15%.
Gross margin declined as anticipated, primarily due to the continued negative impact of higher jeanswear product costs, and was 45.7% compared with 47.2% in the 2011 period. Operating income was $319 million on an adjusted basis in the first quarter. This included earnings from Timberland of $22 million and excluded acquisition-related expenses of $5 million. On a GAAP basis, first quarter operating income was $314 million. Operating margin on an adjusted basis was 12.5% in the first quarter of 2012 and 12.3% on a GAAP basis. Excluding Timberland, first quarter operating margin was 13.5% compared to 14.0% in last year’s first quarter. In the first quarter of 2011, gross and operating margins both reflected a 40 basis point benefit from a change in inventory accounting.
Net income on an adjusted basis rose 9% to $219 million from $201 million in the same period last year. Adjusted earnings per share increased 7% to $1.94 per share, including $0.12 per share accretion from Timberland. Earnings in the quarter were negatively impacted by $0.09 per share from foreign currency translation and higher pension expense ($0.04 and $0.05 per share, respectively). In the first quarter of 2011, earnings of $1.82 per share benefitted by $0.11 per share from a favorable tax settlement and the change in inventory accounting ($0.07 and $0.04 per share, respectively.) On a GAAP basis, net income and earnings per share were $215 million and $1.91, respectively, in the first quarter of 2012.
First Quarter Coalition Review
Outdoor & Action Sports, VF’s fastest growing coalition, achieved another period of strong growth with global revenues rising 60% and organic revenue growth of 15%. The addition of the Timberland® and Smartwool® brands contributed $356 million to revenues.
Global revenues of The North Face® brand increased 14% during the quarter, with double-digit growth in both the Americas and internationally. Momentum continued in The North Face® brand’s direct-to-consumer business, where revenues grew more than 20% in the quarter. The Vans® brand achieved another quarter of very healthy growth, with global revenues rising 25% and strong increases in both its Americas and international businesses. The Vans direct-to-consumer business demonstrated solid results, with revenues rising by 18%. Timberland’s revenues grew modestly during the quarter, with continued growth in the Timberland® Earthkeepers® collection and PRO® Series.
Operating income for the coalition rose 40% to $202 million, including earnings from Timberland of $17 million. Operating margin was 16.0% compared with 18.3% in the 2011 period, with a negative impact of 40 basis points from acquisition-related expenses. Excluding Timberland, operating income rose 28% and the coalition operating margin increased 200 basis points to 20.3%.
Jeanswear delivered strong revenue growth of 9% in the quarter. Double-digit increases across the Lee®, Mass Market and Western businesses in the U.S. reflected strong sales of spring seasonal products and a positive response to the recent launch of Rock and Republic® jeanswear. International jeans revenues declined slightly (flat in constant dollars) in the quarter, with growth in Asia offset by lower revenues in Europe and other regions.
Jeanswear operating income and margin both declined as anticipated in the quarter, reflecting the impact of higher product costs. Operating margin comparisons are expected to improve in the second quarter, with operating margin expansion expected beginning in the second half of 2012.
Imagewear revenues grew by a solid 12% in the quarter, with gains in both the Image and Licensed Sports Group businesses. The Image business achieved revenue growth of 21% in the quarter, fueled by strong uniform demand in the oil and gas and automotive industries. Licensed Sports revenues grew 3%, with particular strength in its women’s and e-commerce businesses.
First quarter operating income grew 16%, with operating margin expanding to 15.5% from 15.0% in the prior year’s quarter.
Sportswear achieved revenue growth of 10% in the quarter, reflecting increases in both Nautica® and Kipling® (U.S.) brand revenues. A 6% increase in Nautica® brand revenues was driven by solid gains in both its men’s sportswear and retail businesses. The Kipling® brand continued its rapid expansion, with revenue growth of 44% during the quarter.
Sportswear operating income increased 44% in the quarter, with operating margin rising to 8.7% from 6.6% in the first quarter of 2011.
Contemporary Brands delivered strong results in the quarter, with revenues up 13% and growth across the 7 For All Mankind®, Splendid®, Ella Moss® and John Varvatos® brands. The 7 For All Mankind® brand’s success in combining product innovation with fashionable new styles in both denim and sportswear drove an 18% increase in U.S. revenues with double-digit growth in both its wholesale and direct-to-consumer businesses during the quarter. On March 8, 2012, a definitive agreement to sell John Varvatos Enterprises, Inc. was announced, and the transaction is expected to be completed in the very near future.
Contemporary Brands’ operating income increased 53% in the quarter, with a substantial improvement in operating margin to 11.7% from 8.7% in the prior year’s quarter.
Expansion in International Revenues (in Constant Dollars)
International revenues increased 48% in the first quarter, with 33 percentage points of the growth attributable to Timberland. Organic revenue growth in Europe was 13%, driven by solid performance in the Vans® and The North Face® brands. In Asia, organic revenue growth was 19%, with growth in the Lee®, The North Face®, Vans® and Kipling® brands. Strong growth also continued in India, where revenues were up 18% during the quarter.
International revenues reached 40% of total revenues in the quarter compared with 36% in the first quarter of 2011.
Growth in Direct-to-Consumer Revenues
Direct-to-consumer revenues increased 49% in the first quarter, with 32 percentage points of the growth attributable to the Timberland acquisition. Direct-to-consumer revenues of The North Face®, Vans®, 7 For All Mankind® and Nautica® brands each achieved double-digit growth in the period. A total of 24 stores were opened across our brands in the quarter, bringing the total number of owned retail stores to 1,059. Direct-to-consumer revenues reached 19% of VF’s total revenues in the quarter compared with 16% in the 2011 period.
Balance Sheet Strength
Inventories remain very well managed, up 28% in total from March 2011 levels but up only 7% excluding Timberland, with the majority of the increase resulting from higher product costs. The higher debt levels compared with 2011 are related to the Timberland acquisition. Two million shares were repurchased near the end of the first quarter for approximately $300 million.
2012 Earnings Guidance Raised
Based on strong first quarter results, adjusted earnings per share in 2012 are now expected to rise to approximately $9.45 per share, up $0.15 from the $9.30 per share guidance provided on February 16. The expected earnings contribution from Timberland in 2012 remains at approximately $1.10 per share.
Guidance for adjusted 2012 earnings per share now excludes two items: 1) Timberland acquisition-related expenses, currently estimated at $0.23 per share, and 2) the anticipated gain from the sale of John Varvatos Enterprises, Inc., which should approximate $0.20 per share. Inclusive of these two items, 2012 earnings per share on a GAAP basis is now expected to reach $9.42.
The impact of a slightly stronger than anticipated U.S. dollar on foreign currency translation rates versus our guidance benefitted first quarter earnings by $0.05 per share. Accordingly, the negative impact of foreign currency translation on full-year earnings per share is now expected to be $0.35 per share, versus the $0.41 per share anticipated in prior guidance. The assumed euro conversion rate for the second quarter of 2012 is 1.30, while the assumed rate for the second half remains unchanged at 1.25. The revised guidance continues to include a negative impact of $0.19 per share from higher pension expense in 2012.
Revenue guidance for 2012 remains unchanged, with revenues expected to rise by approximately 15% (17% in constant dollars) to $10.9 billion, with Timberland accounting for approximately $1 billion of the growth. Excluding Timberland, revenues should rise by approximately 6% (8% in constant dollars). Given the imminent sale of the John Varvatos business, current guidance excludes $70 million in John Varvatos revenues for the remainder of 2012.
Looking ahead to the second quarter, earnings per share comparisons will be particularly challenging due to several factors. First, while Timberland is on track for significant revenue and earnings accretion in 2012, it is a highly seasonal business. Accordingly, Timberland has historically posted a substantial loss in the second quarter. This loss is expected to approximate $30 million (equal to about $0.20 per share) in the second quarter, which is comparable to the loss reported by Timberland in its second quarter last year. Second quarter earnings will also reflect the continued negative impact from foreign currency translation and higher pension expense, which together should impact earnings per share by $0.09. Additionally, second quarter 2011 earnings benefitted by $0.07 from a gain from a facility closure. These factors are expected to negatively impact second quarter earnings comparisons by a combined $0.36 per share.
Adjusted Amounts
This release refers to adjusted amounts that exclude restructuring and other costs related to the acquisition of Timberland, which approximated $5 million ($0.03 per share) in the first quarter of 2012 and are currently estimated at $34 million ($0.23 per share) for the full year. Adjusted amounts referenced in conjunction with 2012 annual guidance also exclude the anticipated gain on the sale of John Varvatos Enterprises, Inc. of approximately $40 million (about $0.20 per share). Reconciliations of GAAP measures to adjusted amounts are presented in the supplemental financial information included with this release, which identify and quantify all excluded items.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of $0.72 per share, payable on June 18, 2012 to shareholders of record as of the close of business on June 8, 2012.
