NEW YORK — Finding that its move to buy more goods from foreign contractors is paying off quicker than expected, VF Corp. on Wednesday reported a 28.1 percent jump in second-quarter net income, handily beating Wall Street’s...
NEW YORK — Finding that its move to buy more goods from foreign contractors is paying off quicker than expected, VF Corp. on Wednesday reported a 28.1 percent jump in second-quarter net income, handily beating Wall Street’s expectations.
Company executives said the improvement in margins, coupled with an anticipated improvement in sales, will bring a 12 percent increase in net income for the full fiscal year, factoring out one-time expenses.
One-time items have played an important role in the company’s recent financial results, with VF reporting net losses in the first quarter of 2002 and fourth quarter of 2001 resulting from a $527.3 million goodwill write-off and $236.8 million in restructuring charges, respectively.
"Our conservatism, our approach to today’s difficult market and our brand-management skills are paying dividends this year," said chairman and chief executive officer Mackey McDonald in a conference call with stock analysts. "Our cost structure is in excellent shape."
The Greensboro, N.C.-based company said net income for the quarter ended June 29 came in at $88.9 million, or 79 cents a diluted share. That compares with $69.4 million, or 60 cents a share, last year. Excluding one-time items, which Wall Street analysts leave out in making their profit forecasts, VF’s income would have been 77 cents a share, well ahead of the 63-cent Thomson Financial First Call consensus.
The rise in income came despite a 9.8 percent drop in sales to $1.19 billion. The sales decrease was more than offset by a rise in operating margins to 37.3 percent of sales from 33.8 percent.
"They realized a greater part of the cost savings from the restructuring than they had thought," said Dennis Rosenberg, analyst at CS First Boston. "It’s paying off faster."
Robert Shearer, vice president and chief financial officer, said the move to close domestic production facilities and move to offshore contractors and foreign VF-owned plants was improving margins.
"Clearly, we’re seeing fundamental improvement in the underlying profitability of our core businesses," Shearer said.
Robert Drbul, analyst with Lehman Bros., noted that VF also had a lower level of "distressed sales" — goods that must be sold for a steep markdown — during the quarter. That’s because the company has cut its inventory levels dramatically over the past year in response to the slowdown in retail demand.At the end of the quarter, VF had $894.1 million in inventory on hand, 26.3 percent less than a year earlier.
McDonald said the company has found some bright spots in a shaky retail environment.
"Although June same-store sales comparisons were slightly better than expected, we’re still seeing mixed results overall," he said. "Our brands are continuing to gain share. The mass channel continues to be stronger than department or specialty stores as consumers search for value."
He said the company’s research showed that Wrangler’s U.S. market share for the first five months of the year had risen to 10.3 percent, from 10 percent a year earlier. Lee’s was up to 4.4 percent from 4.2 percent.
"Domestic jeans sales were down in the first half, but expected to be up in the second half," he said, explaining that the decline in revenue in that business was partly due to first-half price cuts.
He also pointed out that VF had landed the uniform contract for the 55,000 airport security workers to be hired by the newly created Transportation Security Administration.
McDonald said he expects sales in VF’s continuing businesses — late last year it said it was pulling out of the swimwear and private label knitted apparel business — to be up 4 percent in the second half of the year.
But he acknowledged that overall demand for apparel is likely to remain less than robust. He suggested the relatively strong recent sales performance of discounter mass merchants, in comparison to apparel specialty retailers and department stores, reflects the fact that the mass chains are less dependent on apparel revenues.
Consumers have many other spending options, he noted.
"There are other priorities for their disposable income, which relates to home, travel, services, electronics," he said. "The challenge we have in the apparel industry is presenting new innovative product. I don’t think that advertising brands gets you there today. I think you have to have better products for consumers and you have to tell them about it."
He noted that the company boosted its marketing spending by 16 percent so far this year, placing a strong emphasis on product-specific advertising, such as the current TV campaign for Lee Performance Khakis showing a woman pouring red wine on her stain-resistant pants.After making a number of acquisitions in 2000, including The North Face, Eastpak and HIS jeans, VF took a breather from its buying spree last year. McDonald said the company is now back in the hunt.
Without naming specific brands of interest, he said, "We’re looking, obviously, to strengthen those areas that we currently don’t have the strength in. The ideal acquisition for us would be a lifestyle brand that would cover multiple product categories."
In particular, the company is looking at junior and young men’s brands distributed in department stores, he added. VF has cash on hand if the right deal comes along —?its balance sheet showed $272.2 million in cash at the end of the quarter, up from $100.4 million a year ago.
Analysts on the call asked McDonald about the Securities and Exchange Commission’s new requirement that ceo’s sign sworn statements attesting to the validity of all the information in their financial reports. The policy is intended to make it easier to hold corporate executives legally responsible for financial shenanigans and outright fraud, such as has been uncovered at several major companies over the past few months.
"What we have in place at VF is a culture of financial controls that have been there for many, many years. We have some terrific people who stick behind those controls and live by them," McDonald said. "I feel fully confident signing any statement anyone wants me to sign about our finances and accounting."
VF shares rose 13 cents, to $35.58 in Wednesday’s trading on the Big Board.
For the six months, VF recorded a $359.4 million net loss, including the goodwill write-off. That compares with $146.9 million in earnings a year earlier. Sales slipped 10.2 percent to $2.47 billion.
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
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