The sportswear and denim giant believes that after several years of struggles and a weak first quarter, its jeans business will return to growth in the second half of the year. The uptick will be “driven by great new product innovations and channel expansion. And for the full year, we continue to expect low-single-digit growth for this highly profitable coalition,” said Bob Shearer, VF’s chief financial officer.
“We look forward to 2014 being one of the strongest years for our jeanswear business in quite a few years,” added Karl Heinz Salzburger, group president of international, referring to VF’s jeans business outside the Americas.
Eric Wiseman, chairman, president and chief executive officer of VF, told WWD that efforts to elevate the company’s two billion-dollar jeans brands, Wrangler and Lee, to the midtier and department store channels, respectively, were proceeding well.
“VF jeanswear was down 4 percent while Wrangler was down 2 percent and Lee was down 1 percent,” he pointed out. “What’s missing? About half of the high-single-digit decline [in the U.S.] came from our exit from a big private-label business that we didn’t make money on.” He didn’t identify the U.S. retailer involved.
Rock & Republic, acquired out of bankruptcy in 2010 and now distributed exclusively at Kohl’s, “has done really well in total, but we got a bit far ahead in fashion and we’ve had to adjust the product line. That showed up in the quarter, too,” the ceo noted. “There’s no concern long-term, but an inventory adjustment needed to be made.”
Reflecting on Rock & Republic as well as ongoing efforts to place Lee in department stores and Wrangler in midtier retailers, Wiseman said, “When you take a brand to a new channel for the first time, you have to learn how far you can push that business. One of the ways you find out how far you can go is by sometimes going a bit too far.”
Lee has strength in the midtier while Wrangler derives its U.S. business from mass merchants and Western stores.
VF still faces an uphill battle in denim in the second quarter of the year after the group’s coalitions of jeanswear and contemporary, which includes the premium denim brand Seven For All Mankind, weathered declines in their top and bottom lines in the first quarter. Compensating for weakness in jeanswear and contemporary, its other three coalitions, led by its dominant outdoor and action sports group, posted improved sales and profits that contributed to better-than-expected first-quarter results and led VF to boost full-year guidance.
With global jeanswear sales in the first quarter off 3.8 percent to $690.3 million, and a similar performance expected in the current second quarter, there will be enormous pressure on the third and fourth quarters if projections are to be met.
In the first quarter, jeanswear sales in the Americas were off in the high-single-digits while they came in with high-single-digit increases outside the Americas.
While contemporary coalition revenues were down 5.4 percent, to $98.2 million, and operating income contracted 37.2 percent, to $7.9 million, Wiseman voiced confidence in Seven For All Mankind, the coalition’s premium denim brand.
“We strongly believe that Seven For All Mankind is holding or gaining share in the contemporary market in women’s denim, where Seven does the majority of its business,” he said.
Premium jeans have faced severe challenges in the department-store channel and haven’t been able to overcome them with their own stores. Shearer told analysts that the contemporary group’s direct-to-consumer business “was up at a low-teen rate but this was offset by a similar rate decline in the wholesale business, which continues to experience challenging demand for premium denim.”
Speaking with WWD, Wiseman noted that the shift to the ath-leisure trend, as typified by the popularity of yoga pants for both everyday and active use, has taken some business from Seven For All Mankind in the U.S. and Canada but the impact overall has been minor.
“It’s not a global trend, and it’s not a male trend, and you have to recognize that about two-thirds of our business is in men’s,” he said. “It hasn’t had no effect, but where it has had an effect is with the U.S. business of Seven For All Mankind, which is predominantly a women’s business.”
The Seven For All Mankind business was down at a high-single rate in the U.S. but up at a similar rate in Europe.
While not heavily invested in ath-leisure, Wiseman said both The North Face, in outdoor & action sports, and Lucy, in contemporary, are looking into bottoms that address the trend. Additionally, the move toward yoga pants is part of a continuing embrace of comfort and flexibility that is being actively addressed by the jeanswear coalition, such as with the Heavenly Touch and Easy Fit models from Lee, which combine “the comfort of leggings with the structural benefits of denim,” according to Scott Baxter, group president of jeanswear, imagewear and South America.
VF saw the three billion-dollar brands in the outdoor group — Vans, The North Face and Timberland — register revenue increases of 20, 14 and 12 percent, respectively, and Vans emerge as the highest-volume brand for the period. All told, the coalition generated revenues of $1.57 billion, a 13.8 percent increase over the prior year, as operating income jumped 21.2 percent to $274.5 million. The increases were the highest among the five coalitions as the outdoor group expanded its share of company revenues to 56.6 percent from 53 percent a year ago.
Overall in the quarter ended March 20, net income was up 9.9 percent to $297.2 million, or 67 cents a diluted share, from $270.4 million, or 60 cents, in the comparable period last year. Analysts on average had expected earnings per share of 63 cents. Revenues rose 6.5 percent to $2.78 billion from $2.61 billion. Analysts expected $2.75 billion in revenues.
Gross margin rose to 49.4 percent of sales, up 130 basis points from a year ago and the highest measure for any quarter in VF’s history. VF said margins increased in all of its coalitions.
Direct-to-consumer revenues were up 16 percent, with double-digit increases in all regions, and growth, according to the firm, in “nearly every brand.” Wiseman said, as he has in previous quarters, that VF is just beginning to put e-commerce platforms in place in many markets and that, even in the U.K., where it’s already established, “it’s far from mature. When I look at the digital landscape, I see plenty of white space for us.”
In updated guidance, VF expects full-year EPS of about $3.06, 1 cent higher than the top of its previous range of between $3 and $3.05, and revenue expansion at the higher end of its previous guidance for an increase of between 7 and 8 percent.
The earnings beat and elevated guidance helped VF’s stocks gain ground Friday, a day when increases were scarce. Shares rose 2.2 percent to $61.44 as the overwhelming majority of fashion, retail and beauty stocks suffered declines.
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye
“It’s passion that helps get anybody to a certain point and it’s what’s propelled me,” said Kith founder @ronniefieg, one of WWD’s 40 under 40: a group of industry notables who are changing the face of retail, fashion and beauty. Fieg, who opened a Manhattan flagship on October 7, began his career at age 13 as a stock boy and salesman for footwear chain David Z. “I think staying true to [my] beliefs, hard work and passion have gotten me to where [Kith] is today.” See the rest of the 40 at WWD.com. (📷: @vsteves) #wwd40
25-year-old @samweaving is about to break out this fall, starring in Netflix’s horror film “The Babysitter,” fittingly out today on Friday the 13th. That’s not the only place you’ll be seeing her, though — Weaving’s got a role Showtime’s “SMILF” and another alongside Frances McDormand and Woody Harrelson in “Three Billboards Outside Ebbing, Missouri.” Though she’s got a full plate at the moment, there’s one role she’s got her eye on: Marilyn Monroe. “I’m a little too young at the moment, but it’s on my bucket list,” the actress told WWD (📷: @dandoperalski) #wwdeye
BFF's Poppy Jamie and Suki Waterhouse celebrated the launch of their bag line Pop x Suki at Nordstrom last night. "The line is really about our friendship, and how we are so different but complement each other," said Waterhouse. 👯 (📷: Katie Jones) #wwdeye
After designing the new @louisvuitton and @bulgariofficial flagships and a @chanelofficial boutique opening in Japan, @petermarinoarchitect has another project on his plate: The Lobster Club. Located in the Seagram Building, it’s the famed architect’s first restaurant project in New York, serving up modern Japanese brasserie-style cuisine. Bronze hues, bespoke material detailing, blush and chartreuse tones and a heavy emphasis on Picasso can be seen throughout. Mark your calendars for Nov. 1 for the much-anticipated opening. (📷: @clint_spaulding) #wwdeye