NEW YORK — A highly diversified portfolio of brands and business segments couldn’t prevent apparel giant VF Corp. from feeling the sting of the accelerating downturn of the global economy during the first quarter.
In addition to reporting a double-digit decline in earnings for the three months ended March 31, VF’s management said revenues were anticipated to fall between 5 and 7 percent in 2009, a downward revision from earlier guidance of 3 to 4 percent declines. Earnings per share are expected to be in the range of $4.70 to $5.00, compared with $5.42 in 2008. Management will also no longer provide quarterly earnings guidance going forward.
“Our results do confirm that we continue to face extremely challenging conditions that affect each of our businesses in one way or another,” said Eric Wiseman, VF’s chairman and chief executive officer, in a conference call with analysts.
Three factors were cited as the primary challenges facing the company going forward. VF’s jeans business is being severely impacted by weakening economic conditions in Eastern Europe and Scandinavia. Rising unemployment in the manufacturing and petrochemical segments is expected to continue to impact uniform sales in the imagewear segment, and weakness in high-end department and specialty stores continues to harm premium denim label Seven For All Mankind.
First-quarter earnings dropped 32.2 percent to $100.9 million, or 91 cents a diluted share, falling short of consensus estimates of 94 cents a share. In comparison, the company reported earnings of $149 million, or $1.33 a share, in the same period a year ago. While sales gains were tough to come by in the majority of the world’s developed markets, higher pension costs and the adverse impact of currency exchange rates hampered results by upwards of 20 cents a share.
Revenues slid 6.5 percent to $1.72 billion from $1.85 billion. Sales also fell 6.5 percent to $1.71 billion from $1.83 billion, while royalty income declined 13.7 percent to $18.2 million from $21.1 million.
“We’re not planning for any improvement in the macroeconomic conditions this year,” said Wiseman. “While our first-quarter results were largely as we expected, we’ve seen a few areas where conditions have significantly and unexpectedly deteriorated.”
Revenues in the jeanswear coalition, home to the Lee and Wrangler labels, fell 6.3 percent to $667.4 million from $712.2 million. Much of the decline was attributed to weakening conditions in Eastern Europe and Scandinavia, which account for approximately 40 percent of VF’s European jeans business.
“The change in market conditions is impacting our jeans business more than our other businesses,” said Karl Heinz Salzburger, president of VF International. “This sudden change marks a big reversal in trends for us.”
The domestic market proved a bright spot for the jeans segment. Wrangler turned in a 3 percent revenue gain in the U.S. while the Lee brand achieved a 7 percent increase, and both labels captured larger shares of the market in their distribution channels. Revenues grew by 15 percent in Asia as well.
Revenues for the outdoor and action sports segment fell 4.8 percent to $605.9 million from $636.2 million. The North Face bucked the trend, however, with double-digit revenue gains on a constant currency basis.
The company’s youngest business segment, contemporary brands, suffered a setback as economic conditions continued to weigh on high-tier business segments. Premium denim giant Seven For All Mankind and the Lucy brand, in particular, saw declines.
Wiseman said Seven’s wholesale business in the U.S. and Europe is faltering along with major department stores. It’s a similarly dire situation in the specialty-store channel where conditions have forced owners to shut their doors.
“With the specialty stores, we’re losing a lot of customers,” said Wiseman. “Not that they’re dropping the brand, but those customers are going away.”
The sportswear segment saw revenues decline 13.5 percent to $103.6 million from $119.7 million, and the imagewear business fell 8.3 percent to $226.7 million from $247 million.
Management warned economic trends have continued into the second quarter, which is traditionally the worst performing period of the year. Results are expected to improve in the second half, and Wiseman noted the company’s largest and most powerful brands — Wrangler, The North Face, Lee and Vans — are gaining share in their markets and account for 60 percent of revenues. VF also opened 19 stores during the quarter and is on pace to open 70 for the year.
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