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A shaky global economy isn’t taking the wind out of VF Corp.’s sails, as the lifestyle giant turned in another record-setting second quarter.
This story first appeared in the July 16, 2008 issue of WWD. Subscribe Today.
But Eric Wiseman, president and chief executive officer, sounded a note of caution about overall business conditions.
“Make no mistake, it is tough out there, but it is in times like these that the VF business model really proves itself,” Wiseman said during a conference call with analysts.
“There continues to be a huge amount of concern out there about how the rest of the year will play out,” he said. “All along we’ve shared this concern. From the beginning of the year we’ve talked about difficult conditions persisting throughout the year.”
For the three months ended June 30, the Greensboro, N.C.-based company reported that earnings vaulted 27.3 percent to $104 million, or 94 cents a diluted share, bettering the consensus estimate of Wall Street analysts by 8 cents. Lazard Capital Markets retail analyst Todd Slater said VF has beaten consensus estimates for 30 consecutive quarters. In the same period a year ago, VF reported earnings of $81.7 million, or 72 cents a share.
Revenues increased 10.6 percent to $1.68 billion from $1.52 billion. Sales rose 10.5 percent to $1.66 billion from $1.5 billion. Royalties increased 12.5 percent to $19.1 million from $17 million.
International markets are proving key to VF’s growth, as economic conditions worsen in the U.S. and shrink consumer spending. International revenues increased 23 percent during the quarter and accounted for 27 percent of revenues or about $452.9 million. Owned-retail is providing a second pillar for growth, with retail revenues increasing 15 percent during the quarter and accounting for 15 percent of overall revenues, or $251.6 million.
The outdoor segment, home to The North Face, Vans, Napapijri and Kipling brands, continued to set the pace. Revenues for the segment rose 17.2 percent to $523.5 million from $446.7 million, with double-digit growth in domestic and international markets. The North Face brand posted a 40 percent boom in revenues and global revenues for Vans rose 14 percent. The company opened 12 stores in the outdoor segment during the quarter. Management believes the outdoor segment can achieve more than 15 percent revenue growth in the second half of the year, driven largely by its existing owned-retail operations and through its expansion plans.
Despite the impressive earnings, Wiseman acknowledged that VF is dealing with the same economic headwinds being faced by almost every consumer product segment, and that “pockets of weakness” are materializing. VF’s jeanswear coalition is one area reflecting the weakened state of the U.S. retail environment. Jeanswear revenues fell 1.4 percent to $646.2 million from $655.4 million. Domestic revenues slid 7 percent, while revenues in international markets rose 14 percent.
“I think in general, in every channel of distribution, consumers are trading down,” Wiseman said.
Imagewear revenues increased 4.9 percent to $241.2 million from $229.9 million. The sportswear segment experienced a decline of 3.5 percent to $148.3 million from $153.7 million because VF exited the women’s Nautica business. The recently formed contemporary brand coalition turned in revenues of $87.6 million.
For the first six months of the year, earnings gained 15 percent to $253 million, or $2.27 a share, from $220 million, or $1.93 a share. Revenues rose 10.4 percent to $3.52 billion from $3.19 billion. Sales increased 10.5 percent to $3.48 billion from $3.15 billion and royalties improved 8.6 percent to $40.1 million from $37 million.
Outdoor segment revenues spiked 17.7 percent to $1.16 billion from $985.5 million, while jeanswear revenues fell 4.1 percent to $1.36 billion from $1.42 billion. Imagewear revenues rose 10.1 percent to $488.3 million from $443.6 million, sportswear revenues fell 7.1 percent to $280.5 million from $302.1 million and revenues for contemporary brands came in at $183.5 million.
Based on the strength of results, management raised its guidance to a 12 percent earnings improvement from 10 percent, with revenues expected to rise more than 9 percent to $7.9 billion.
“As I look at the balance of the year, I am cautious and know it will not be easy,” Wiseman said.