The also-rans in the VF Corp. portfolio came through in a big way in the fourth quarter.
This story first appeared in the February 19, 2013 issue of WWD. Subscribe Today.
Strength in the sportswear and contemporary coalitions — outside its five billion-dollar brands — helped VF Corp. increase its fourth-quarter earnings nearly 30 percent, pushing past analysts’ estimates.
The performance also contributed to a better than 200-basis-point increase in both gross and operating margins for the quarter and VF’s passing the $10 billion mark in revenues for the year, which came in at $10.88 billion.
“We had one billion-dollar brand five years ago — Wrangler — and today we have five,” Eric Wiseman, chairman and chief executive officer, told WWD. “We have smaller brands, like Kipling, that are today growing at the same rate that The North Face and Vans were a few years ago. Kipling was a 50 million euro business when we bought it [in 2004] and it will hit $300 million this year.
“These growth rates weren’t by accident,” he added. “The brands took off because we invested in them.”
In addition to Wrangler, North Face and Vans, Lee and Timberland have sales in excess of $1 billion each.
Wiseman noted that VF’s acquisition strategy — which has favored multiple acquisitions of smaller companies with sharply focused consumer franchises — has been criticized by Wall Street as being spread out across “so many brands in so many markets. I think we’re proving that it may have been too complex for some people to follow, but it’s not too complex for us to manage.”
The strategy continued to generate strong results in the fourth quarter ended Dec. 31, when net income jumped 29.9 percent to $334.2 million, or $2.98 a diluted share, from $257.3 million, or $2.28. On an adjusted basis, EPS was $3.07, 4 cents better than analysts’ consensus estimates.
Revenues were up 4.2 percent to $3.03 billion in the quarter from $2.91 billion in the fourth quarter of 2011. In constant dollars, revenues were up 5 percent. Aided by a decline in cotton prices, gross margin rose to 47.4 percent of sales from 45.2 percent a year ago, and operating margin hit 15.1 percent, up from 12.3 percent.
Wiseman noted that the strongest performance in the quarter came from the sportswear coalition, made up of Nautica and Kipling, which generated a 14.5 percent gain in revenues, to $182.7 million, and a 70.5 percent rise in operating income, to $32.3 million.
The contemporary brands unit — comprising Seven For All Mankind, Splendid and Ella Moss — improved operating profitability 20 percent, to $8.9 million, while revenues dropped 17.1 percent, to $106.9 million. Excluding results from John Varvatos, which was sold in March, revenues increased 4 percent.
“The sportswear and contemporary businesses” — headed respectively by Karen Murray and Susan Kellogg — “had been growing more slowly than the rest of VF,” Wiseman pointed out, “but now, after a couple of years of hard work, they’re right back in the mix. Seven For All Mankind’s jeans business in Europe is nearly as big as its wholesale business in North America.”
Unseasonably warm weather limited sales gains at The North Face and pushed Timberland to lower sales despite strong growth in Asia. Still, the ceo pointed out, quarterly revenue growth at North Face came in at 10 percent and was one point higher at constant currency. “That means we’re gaining market share,” he said.
Wiseman said he expects further growth from the brand as it moves to become less seasonal with more activity-based products tied to interests like yoga and fitness and with properties like moisture wicking.
“We need to be more relevant in markets where there isn’t much of a winter,” he said.
VF initiated 2013 guidance for EPS of $10.70 and revenues of $11.5 billion, both below previous estimates by analysts.
For the full year, profits rose 22.3 percent to $1.09 billion, or $9.70 a diluted share, as revenues rose 15 percent to $10.88 billion.