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VF Corp. likes what it’s seeing in its jeanswear business.
“Our jeanswear business today is in really good shape,” Robert Shearer, senior vice president and chief financial officer of Greensboro, N.C.-based VF, told participants at the Morgan Stanley Global Consumer and Retail Conference in New York Tuesday.
He noted that while the company’s two $1 billion-plus denim-based brands, Lee and Wrangler, might lack the excitement of “the next fabrication for The North Face that takes climbers to the top of Mount Everest,” they continue to generate “very, very healthy margins and a lot of cash for us.”
VF’s jeanswear coalition, home to the two brands, “has been as successful in our innovation platform as any of our businesses,” he said, even if those innovations have been more focused on comfort and fit than fabrics and construction details engineered for the Himalayas.
The focus on innovation within jeanswear has helped the coalition pick up $100 million to $150 million “of revenues that we wouldn’t have otherwise had,” Shearer said.
VF also has benefited from its decision to position Wrangler’s western business as a separate unit which, according to the cfo, “has delivered 10 consecutive quarters of strong revenue growth.”
The jeanswear unit remains challenged by weakness in Europe, which, despite strength in other parts of the world, was substantial enough to push its third-quarter revenues down 1.2 percent, to $718.8 million, despite a 1 percent increase at constant currency. Third-quarter operating profit at the division moved up 19.8 percent to $131.4 million, and profit for the first nine months of the year was up 2.6 percent to $335.6 million, while sales were up 1.7 percent to $2.05 billion.
“We spent a lot of time last year talking about the impact of cotton on our margins,” Shearer recalled, “and I’m happy to say that these businesses are absolutely back on track.”
Specifically, operating margin — operating profit as a percentage of revenues — has rebounded strongly as cotton prices have returned to less inflated levels. Jeanswear’s operating margin reached 18.3 percent in the third quarter, higher than either the figure for the nine months (16.3 percent), all of 2011 (15.1 percent) or even 2010 (17 percent).
“The year is playing out really pretty much as we had planned, if not even a little bit better in terms of profitability within our jeanswear business,” Shearer said. “The jeans margins are returning to more normalized levels and you absolutely see that in this fourth quarter when our operating margin will be in the high teens.”
Shearer commented briefly on Rock & Republic, the jeans brand acquired in early 2011 for $57 million in cash out of bankruptcy. “It’s a brand that’s done really well for us and our wholesale partner Kohl’s,” he said, without divulging financial details.
Turning to Timberland, acquired last year, Shearer said the brand, part of the company’s dominant Outdoor & Action Sports coalition, is on target to generate full-year revenues of $1.7 billion and operating margin of between 10 and 11 percent while adding $1.10 to earnings per share. He added that VF expects to exceed the target for $35 million in cost reductions. Timberland apparel is scheduled to be launched in fall 2013. Full-price retail stores and annual growth of 30 percent a year in China are also on VF’s agenda for the brand.
Last year, VF generated net income of $888.1 million on revenues of $9.46 billion.