By  on October 17, 2008

Declining sales in several key businesses during the third quarter and a worsening global economic picture prompted VF Corp. to lower guidance for the fourth quarter.

“Global market conditions have continued to deteriorate beyond what we could have anticipated, with a marked change particularly during the last several weeks,” said Eric Wiseman, chairman and chief executive officer. “While our brand portfolio is healthy, general economic conditions are not, necessitating that we take a much more conservative stance toward our fourth-quarter guidance.”

Business took a significant turn for the worse during the second half of September and signaled a “turning point” in the economy, according to management, which believes it’s beginning to see the full impact of the weakened economy hit consumers’ wallets. As a result, expectations for the fourth quarter have been slashed to 3 to 4 percent revenue gains and 1 to 5 percent earnings-per-share gains. Previous guidance called for revenues to rise 8 percent and earnings per share to rise 20 percent.

For the three months ended Sept. 30, the Greensboro, N.C.-based company saw earnings spike 12.9 percent to $233.9 million, or $2.10 a diluted share, compared with earnings of $207.2 million, or $1.84 a share, in the same period a year ago. Revenues increased 6.4 percent to $2.21 billion from $2.07 billion. Sales rose 6.5 percent to $2.19 billion from $2.05 billion. Royalty income gained 3.9 percent to $20.8 million from $20 million.

While overall revenues posted substantive gains, three of the company’s business segments saw declines as a result of worsening economic conditions. The jeanswear segment, the company’s oldest business and home to the Lee and Wrangler labels, saw revenues fall 2 percent to $743.2 million from $758.5 million. U.S. jeanswear revenues fell during the quarter, as did European sales.

The sportswear business, which includes Nautica and John Varvatos, fell 5.3 percent to $163.7 million from $173 million. Management cited the exit of the Nautica women’s business as a key contributor to the decline. The Kipling and John Varvatos brands remained bright spots in the segment, each posting double-digit revenue gains.

Imagewear posted a 2.8 percent decline to $260.1 million from $267.5 million. The imagewear segment includes several labels that manufacture uniforms for sports leagues like Major League Baseball and the National Basketball Association, as well as Harley- Davidson-branded apparel.

The contemporary brands division, formed in August 2007 with the acquisition of Seven For All Mankind and Lucy, posted revenues of $100.5 million compared with $32.7 million in the same period a year ago. The year-ago numbers do not reflect results for a full quarter due to the timing of the acquisitions. Management expects single-digit revenue growth for the fourth quarter.

The outdoor segment remains VF’s primary driver. Outdoor revenues vaulted 12.5 percent to $906.6 million from $806.1 million. The North Face, Vans, Kipling, Reef, Eastpak and Napapijri brands all posted double-digit revenue growth. The emphasis on opening branded stores in the outdoor segment is having a particular impact and the company opened 14 such stores during the quarter. Management expects to be able to maintain midteen percentage revenue gains for the fourth quarter in this area largely due to the strength of the branded stores.

Wiseman said declines were proportionally spread across the company’s brands and that there had not been a material decline in future orders, but buyers are cautious.

“Our assumption for the fourth quarter is that the environment of the last four weeks carries forward,” said Wiseman. “In general, that means we’re going to have to make more investments and promotions to move our goods.”

Management is committed to increase marketing and product development activity and plans to spend 15 to 20 percent more on advertising during the fourth quarter compared withthe same period last year.

“It’s times like these where strong companies like us have an opportunity to invest in their brands and in the process gain market share,” said Wiseman, noting the poor economic conditions might offer VF greater ability to build its portfolio of lifestyle brands. “There may be some opportunities that come up from good brands that are struggling to get through this liquidity crisis.”

International sales advanced 22 percent during the quarter and accounted for 34 percent of revenues, or approximately $751.4 million. Retail revenues increased 12 percent, representing 14 percent of revenues, or $308.9 million. The European market is likely to present further challenges, however.

“We started talking about a slowdown in select European markets in the first quarter call,” said Wiseman. “I think what we’ve seen is a widening of that trend, more in Western Europe.”

Conditions for countries like Italy, Spain and the U.K. have deteriorated, and the malaise is now spreading to Germany and France.

For the nine months, earnings improved 14 percent to $486.9 million, or $4.37 a share, compared with earnings of $427.2 million, or $3.76. Revenues increased 8.9 percent to $5.73 billion from $5.26 billion.

By segment, jeanswear revenues fell 3.4 percent to $2.1 billion from $2.17 billion. Outdoor revenues sprung up 15.3 percent to $2.06 billion from $1.79 billion. Imagewear revenues increased 5.2 percent to $748.4 million from $711 million. Sportswear revenues fell 6.5 percent to $444.2 million from $475.1 million. Contemporary brands revenues rose to $284 million from $32.7 million.

International revenues increased 21 percent and retail revenues grew 16 percent. The company finished the fourth quarter with 662 owned stores and said it is on track to open 90 stores this year.

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