Retailers’ memories of a warm winter are continuing to haunt VF Corp.’s The North Face brand during a sweltering summer.
Reporting second-quarter results that beat analysts’ estimates Friday even as revenues fell slightly shy of them, VF indicated that North American stores are taking a conservative approach to cold-weather oriented merchandise as they plan for fall. That’s hurt North Face’s advance orders for the season in the Americas, even though second-quarter global volume for the brand rose 5 percent. The brand’s sales were up 40 and 10 percent in the less penetrated markets of Asia and Europe, respectively, despite a “modest decline” in the brand’s wholesale business in the Americas.
“Retailers who’ve been hurt with inventory in the last two winters are buying cautiously and closer to need, taking delivery later,” Eric Wiseman, chairman, president and chief executive officer of VF, told WWD Friday, adding that a 53-week fiscal calendar this year will push the brand’s biggest shipping week into the first week of October, the start of VF’s fourth quarter, from the last week of September, when the third quarter ends.
During the company’s conference call, he emphasized that low in-season demand and “inventory overhang” were a problem throughout the outdoor industry. “It’s not just The North Face,” he said, “but all the brands that play in that space….Retailers are going to wait and see how the weather unfolds.”
The weather wasn’t an issue in Europe, where the conditions were more seasonal.
Timberland’s revenues were down 3 percent in the quarter, with European revenues off at a double-digit pace, but the challenge for the brand was more a matter of European economics. Timberland is VF’s largest business in Europe, and its largest market in Europe is Italy.
“We don’t believe we’re losing market share in Italy, but the Italian specialty store business is very, very tough,” the ceo noted. “The market is softer, but we’re getting a bigger piece of it. Since we don’t have the levers to fix the Italian economy, we’re pulling the levers to invest in other markets like Germany, the U.K. and France.”
The third of VF’s trio of billion-dollar brands in its outdoor and action sports coalition is Vans, which saw global revenues rise 15 percent worldwide.
Overall in the three months ended June 29, net income slipped 11 percent to $138.3 million, or $1.24 a diluted share, from $155.3 million, or $1.40, a year ago. Stripping out special items in both periods, including the benefit from the sale of John Varvatos during last year’s quarter, adjusted earnings per share was $1.27, 10 cents better than the consensus estimate of $1.17 and 16 cents above the year-ago adjusted figure.
Revenues grew 3.7 percent to $2.22 billion, below the $2.26 billion estimated by analysts, versus $2.14 billion in the 2012 quarter.
Gross margin hit an all-time high of 48.5 percent, versus 46.1 percent in the second quarter of 2012, as cost of goods sold fell 1 percent, to $1.14 billion, and the company’s product mix continued to shift toward higher-yielding retail and international businesses. Direct-to-consumer rose to 22 percent of revenues, and international to 34 percent, from 21 and 33 percent, respectively, a year ago.
“We have said we expect 50 to 60 basis points of margin improvement a year over a five-year span, and that’s mostly a reflection of our mix,” Wiseman said. “We don’t expect 240 basis points of improvement every quarter, of course, but we do expect both DTC and international to grow faster than our domestic business.”
Surveying the company’s large denim business, Wiseman noted softness at Seven For All Mankind, the premium brand that’s the biggest component of the contemporary coalition. “The premium denim business has had a pretty soft year, and we didn’t get much support from our wholesale customers,” he said. “But we had a double-digit increase in the brand’s DTC operations. That tells me the product is good.”
VF continues to forecast growth for the coalition despite a slow start and declines in both its sales and profits in the second quarter.
In the jeanswear coalition, revenues grew 3 percent, to $611.7 million, and operating income 16.6 percent, to $108.9 million, to generate the highest quarterly operating margin — 15.7 percent — within the company. With operating income up 21.8 percent to $100.5 million on a 6.1 percent sales rise to $1.1 billion, outdoor and action sports generated a 9.1 percent operating margin.
The Lee brand saw worldwide revenues expand 10 percent as “the midtier channel is getting healthier,” according to the ceo, and the company has seen success in its initiative to place the brand in more department stores, including Belk, Macy’s and, most recently, Bon-Ton.
“What we’re demonstrating is that we have the right products at the right price point,” Wiseman said.
During the first half, net income advanced 10.3 percent, to $408.7 million, as revenues grew 2.9 percent, to $4.78 billion.
Shares closed Friday at $196.94, down $2.59, or 1.3 percent.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews