VF Corp. is on the prowl again.
Eric Wiseman, the company’s chairman, president and chief executive officer, told WWD that VF is interested in expanding its outdoor and active sportswear business to the midtier market and could turn to an acquisition to make it happen. Wiseman said the firm, which has been expanding its Lee jeanswear brand beyond midtier and into department stores, would consider moving in the opposite direction in its dominant Outdoor & Action Sports coalition.
“We ask ourselves if there are other product categories we could take to the midtier,” he said. “There’s nothing to announce at this point, but we would absolutely acquire a brand that could fill in a white space. A great brand to acquire that could take outdoor into a channel we’re not in? That’s something that would interest us.”
In the midtier and mass channels, confronted with weak consumer spending in recent months, VF’s apparel businesses have generally been stronger than those of its wholesale accounts. “We’re winning in those channels, but the channels are struggling,” he said. “Our job — and it’s true in the sporting goods channel as well — is to help our retail accounts win in apparel and we’d need other brands to help them win.”
The midtier and mass channels have sprinklings of outdoor products, many of them bearing stores’ private labels, but few with the power that, for instance, Lee and Wrangler have in the midtier and mass denim markets, respectively. VF is experienced in bringing brands to larger audiences, as it did after buying what was then a troubled North Face in 2000. In 2010, it bought the bankrupt Rock & Republic brand for $57 million and set it up as an exclusive brand at Kohl’s Corp. stores so that licensor VF and licensee Kohl’s share responsibility for production.
As was the case with The North Face prior to its acquisition, outdoor brands have tended to focus on specialty store distribution among outdoor and sporting goods retailers. Larger retailers, such as Dick’s Sporting Goods, tend to buy from vendors of similar scale.
Laying out some of VF’s acquisition criteria, Robert Shearer, senior vice president and chief financial officer, told analysts on a Friday conference call regarding the group’s fourth-quarter results, “We’re agnostic as to geography. We would buy a business anywhere in the world if it was complementary to our brand portfolio. And the size aspect given our current size, bigger deals, fewer bigger deals would be better for us to do. It may not always play out that way, but that’s what we’d prefer to do. And our balance sheet is so healthy right now, given our strong cash flow the last few years, we are in a position to do a big deal if we can find the right one to do.”
VF finished the fiscal year with $776.4 million in cash and cash equivalents on its balance sheet, up from $597.5 million at the end of 2012.
The group’s Outdoor & Action Sports coalition enjoyed a strong fourth quarter even as corporate results for the top and bottom line fell shy of analysts’ consensus estimates, sending shares down 5.1 percent to $56.85 on Friday. U.S. stock markets were closed Monday because of the Presidents’ Day holiday.
The outdoor group’s sales advanced 12.3 percent to $1.92 billion in the quarter, accounting for 58.3 percent of corporate revenues, while its operating income was up 11.2 percent to $358.2 million. In the process, The North Face, VF’s largest brand, topped $2 billion in sales for the year, and Vans leapfrogged over Wrangler to become the firm’s second-largest brand with sales of $1.7 billion. Timberland, with sales in 2012 of $1.5 billion, is the third unit of the outdoor coalition with sales of more than $1 billion, while Lee and Wrangler share that distinction within the Jeanswear coalition. Lee is strongest in the midtier channel and Wrangler in the mass market.
Wiseman noted that The North Face grew 12 percent during the quarter while its direct-to-consumer component was ahead more than 30 percent. Direct-to-consumer revenues overall advanced to 22 percent of revenues from 21 percent in 2012.
In the final quarter of 2013, which ended Dec. 28, VF’s net income rose 10 percent to $367.7 million, or 82 cents a diluted share, from $334.2 million, or 75 cents. The quarterly earnings per share fell 2 cents shy of consensus estimates of 84 cents but 1 cent ahead of VF’s most recent guidance.
Led by the outdoor unit’s strong performance and even more rapid top-line growth in the Sportswear coalition, revenues grew 8.5 percent to $3.29 billion, from $3.03 billion, but again fell shy of Wall Street’s expectations for $3.34 billion on the top line. Sportswear sales were up 13.7 percent to $207.8 million in the quarter.
Jeanswear sales, pressured at the midtier and mass levels, were down less than 0.1 percent to $734.1 million while the Contemporary coalition’s sales were up 0.7 percent to $107.7 million.
Wiseman said that the better denim business, as represented by Seven For All Mankind in the contemporary unit, was challenged by the growing trend of women moving toward athletic apparel in much the same way they had embraced premium stretch jeans in 2011 and 2012. “It’s a trend,” he said. “We don’t know how long it will last but we do know it doesn’t mean the end of the better denim business at all.”
VF projected 2014 sales of about $12.2 billion and EPS of between $3 and $3.05. Analysts earlier had estimated $12.45 billion and $3.09, respectively.
For the year, net income grew 11.4 percent to $1.21 billion, or $2.71 a diluted share, while revenues were up 5 percent to $11.42 billion.
Asked for his reaction about a rare earnings “miss” for the firm, the largest U.S.-based apparel company, and the resulting decline in the stock, Wiseman had no regrets.
“We spent an extra $40 million [on advertising and promotion] building our brands late in the year,” he said. “We could have saved that money and had it drop to the bottom line. Meanwhile, we’re on track, right on our plan and right with our guidance.”