Declining revenues across all but one of its business segments, coupled with a spike in expenses, took a bite out of second-quarter earnings at VF Corp.
This story first appeared in the July 22, 2009 issue of WWD. Subscribe Today.
The Greensboro, N.C.-based apparel giant reported a 27.9 percent decline in earnings to $75 million, or 68 cents a diluted share, for the three months ended June 30, compared with earnings of $104 million, or 94 cents, during the same period a year ago. Management said higher pension expenses and the negative impact of foreign currency exchange accounted for 14 cents of the earnings decline.
“The second quarter was every bit as challenging as we anticipated,” said Eric Wiseman, VF’s chairman and chief executive officer, in a conference call with analysts.
Wiseman stressed the second quarter is traditionally slower for the majority of the company’s labels and that there are signs economic conditions are stabilizing in key markets. But he acknowledged management does not expect to see a significant improvement in market conditions through the remainder of the year, given indicators such as continued high unemployment rates.
Revenues for the quarter fell 11.4 percent to $1.49 billion, compared with revenues of $1.68 billion in the same period last year. Excluding the impact of currency exchange, revenues fell 8 percent. Sales fell 11.6 percent to $1.47 billion from $1.66 billion, while royalty income slid 1.3 percent to $18.8 million from $19.1 million.
Jeanswear, the company’s largest business segment and home to the Lee and Wrangler brands, saw revenues drop 15.6 percent to $545.4 million, compared with revenues of $646.2 million last year. Domestic revenues were down 12 percent during the quarter, while the Lee and Wrangler labels experienced midsingle-digit declines. Continued difficulties in Eastern Europe and mature Asian markets forced international jeanswear revenues down 12 percent.
“We continue to gain share in our biggest core denim businesses and those businesses are the most important to us in the upcoming season,” said Wiseman.
The outdoor segment, housing labels such as The North Face and Vans, saw revenues decline 2.5 percent to $510.5 million from $523.5 million. The segment was buoyed by The North Face and Vans, which expanded revenues by 4 and 14 percent, respectively, during the quarter, and Asia revenues, which spiked 32 percent. Wiseman noted Wrangler, Lee, The North Face and Vans account for 60 percent of revenues and have been among the strongest performers.
Falling sales at department and outlet stores pushed revenues for the sportswear segment, which includes Nautica and Kipling, down 22.6 percent, to $104.3 million from $134.8 million. The imagewear segment saw revenues decline 19 percent, to $195.3 million from $241.3 million.
The acquisition of the Ella Moss and Splendid brand allowed the contemporary brands segment to post a 1.7 percent gain in revenues to $102.7 million from $101 million. However, premium denim label Seven For All Mankind posted a 12 percent drop in global revenues. VF picked up Seven For All Mankind in July 2007 for an estimated $775 million. Sales declines in the wholesale channel are likely to continue, as management noted the pace of specialty store closings, part of the brand’s distribution channel, has accelerated this year.
Wiseman indicated retailers have significantly reduced their inventories in anticipation of a slow fall season and will be more than happy to chase sales if there is any unanticipated uptick in consumer spending.
“I think our retail partners and most of the suppliers have done a good job over the last six to nine months to get inventories in line with plans,” said Wiseman. “Everybody is pretty much where they want to be.”
For the first six months, earnings sank 30.7 percent to $175.4 million, or $1.59 a share, compared with earnings of $253 million, or $2.27 a share, during the same period last year. Revenues fell 8.9 percent to $3.21 billion from $3.52 billion.
Revenues in the jeanswear segment fell 10.7 percent to $1.21 billion from $1.36 billion. Outdoor revenues fell 3.7 percent to $1.11 billion from $1.16 billion. Imagewear revenues fell 13.6 percent to $422 million from $488.3 million. Sportswear revenues fell 18.3 percent to $207.9 million from $254.6 million, while contemporary brand revenues slid 2.3 percent to $204.6 million from $209.4 million.