V.F. Corp. is eyeing more acquisitions to grow the company, although for now the firm still has strong organic growth prospects for the near future.
Those are the two key takeaways following an interview with VF’s Eric C. Wiseman — who is chairman, president and chief executive officer — on Friday, after the company reported second-quarter results in which profits grew 14 percent and the company beat Wall Street’s estimates by 1 cent.
For the three months ended June 28, net income rose to $157.7 million, or 36 cents a diluted share, from $138.3 million, or 31 cents, a year ago. Total revenues rose 8.2 percent to $2.4 billion from $2.22 billion, which included an 8.1 percent net sales increase to $2.37 billion from $2.19 billion. Wall Street analysts on average were expecting 35 cents in earnings per share on a total revenue projection of $2.36 billion.
The company said it saw double-digit revenue growth in its outdoor and action sports, international and direct-to-consumer businesses. Those businesses grew 16 percent, 14 percent and 18 percent, respectively.
For the six months, net income rose 11.3 percent to $454.9 million, or $1.03 a diluted share, from $408.7 million, or 91 cents, in the year-ago period. Total revenues rose 7.3 percent to $5.18 billion from $4.83 billion, which includes a 7.3 percent gain in net sales to $5.12 billion from $4.78 billion.
Separately, the company said it purchased an additional 2.9 million shares for $173 million under its share repurchase program. It said it doesn’t anticipate additional share repurchases in 2014.
In a conference call to Wall Street, Wiseman said, “We’re very pleased with our second quarter and with our year-to-date results. Not just because they’re consistent with our outlook, but also because we’re winning where and how we said we would.”
He added that gross margin at 48.4 percent was in line with expectations and the company is “squarely on track to meet our full-year outlook of 49 percent.”
The company affirmed its full-year 2014 forecast, which has EPS projected at $3.06 a share on an estimated revenue gain of 8 percent.
Shares of VF Corp. slipped 1.1 percent to close at $60.95 in Big Board trading Friday.
Wiseman said the company’s guidance to Wall Street a year ago was a 13 percent EPS growth, based on an 8 percent organic growth plus a 2 percent growth rate from an acquisition. “We are on track [for] 8 percent organic growth, whether an acquisition happens or not,” said Wiseman. He said he was confident the company would hit 13 percent EPS growth without an acquisition, emphasizing that the increase was coming from the expansion of its gross margin rate.
The ceo said there are “several things that might make a company interesting to us.” While outdoor and action sports have been key acquisition focuses for the company — and Wiseman believes the company could still have a greater global foothold in that space — VF isn’t limiting itself to what it might want to acquire. On the call to Wall Street, company executives noted interest in footwear, due to its Timberland acquisition, and the women’s athletic and yoga space, in which it already owns the Lucy brand.
There’s been rumblings that VF could be a viable candidate to acquire Lululemon Athletica, a rumor that Wiseman declined to address.
What the ceo did note was that Timberland indicates VF’s ability to do large deals, although he admitted there are “very few $2 billion to $5 billion opportunities.”
The company is looking for brands that “will respond to our core competencies.…We want brands that have international opportunities. We like direct-to-consumer opportunities. We like activity-based brands,” Wiseman said.
And while moving the needle suggests bigger deals, Wiseman was quick to point out that a $200 million acquisition (The North Face), or one that is $300 million (Vans), that over time can grow to $2 billion in volume “does move the needle.” Both The North Face and Vans are businesses that now do more than $2 billion in annual volume.
Along those numerical lines, Wiseman said future deals don’t have to be big and could be in the $200 million to $800 million range. As an example, the company could easily acquire a firm that is big in a geographic region such as Asia, with opportunities for global expansion, while it simultaneously acquires another comparable firm located in a different geographic area, according to Wiseman.
Which brands become viable acquisitions for VF depends on consumer perception, the ceo said. He explained that the company will spend “tens of millions of dollars” on consumer research on its own brands and those of its competitors. VF will walk away from a deal if it doesn’t like what it hears from its data research about an acquisition target, even if it’s already midway through the process, Wiseman said.
Looking ahead, Wiseman said the second quarter is indicative of what it expects for the second half, with the U.S. up in the midsingle digits. Its international business is likely to continue to grow in the double-digit range. “Our international business is more profitable so that good for our shareholders,” Wiseman said.
The company continues to forge ahead on plans to build its Central and South American platform. Instead of having the brands operating as individual silos, there will be a central team to coordinate growth in the region, something that VF has done for its European business as well as it Asian business. That’s a move that Wiseman said will allow VF to focus its attention on whatever brands are most relevant in the region and create leverage for its operations there. Completion of the platform is still a few years away.
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