VF Corp. is advancing on the international front faster than expected.

This story first appeared in the July 22, 2011 issue of WWD. Subscribe Today.

A 30 percent increase in international revenues, a third of it from currency fluctuation, helped propel the Greensboro, N.C.-based apparel titan to a 16.7 percent gain in second-quarter net income on a 15.4 percent increase in revenues and prompted the firm to lift full-year sales and earnings guidance Thursday.

Eric Wiseman, the firm’s chairman and chief executive officer, told WWD that the rapid pace of global growth for the firm, particularly in China and India, could allow VF to realize its five-year goal of advancing international revenues to 40 percent of its total, from 30 percent last year, ahead of schedule. With favorable currency translation at its back, the company is on track to generate 33 percent of revenues from international sources this year. VF laid out its five-year plan for investors in March.

“Every one of our five coalitions grew at a double-digit pace in the second quarter, and international was a big driver of that,” Wiseman said, citing growth of 30 percent in Europe, 40 percent in Latin America and 26 percent in Mexico. Sales in Asia were up 30 percent in the quarter, highlighted by growth of more than 50 percent in India, which admittedly is a “relatively small but rapidly growing market,” said Wiseman.

China remains VF’s “biggest opportunity. It took us 10 years to get to $50 million in China after arriving there in 1995, and we’ll do over $300 million there this year,” he said. “We can get to $1 billion in another four years.”

With infrastructure in place, more recent introductions of brands from the VF portfolio aren’t taking as long to gain traction. The company launched The North Face in China in 2008 and Vans the following year. “It took two years for North Face to get to $50 million and two years for Vans.”

The ceo said that VF has “hit the pause button” for brand launches in China while it ramps up with North Face, Vans and Kipling, introduced in 2010. But later this year it will introduce Vans to India, where it currently only markets jeanswear.

“There are a couple of billion feet in India, and none of them are walking around in Vans shoes yet,” he noted.

Blowing through analysts’ estimates, net income attributable to VF in the three months ended June 30 hit $129.4 million, or $1.17 a diluted share, up from $110.8 million, or $1, in the year-ago quarter. Overall revenues rose to $1.82 billion, up from $1.58 billion in the 2010 period, with sales up 15.4 percent to $1.84 billion and royalties up 10.2 percent to $18.9 million. Analysts, on average, expected earnings per share of $1.02 on revenues of $1.74 billion.

The higher guidance and earnings beat helped lift shares of VF by $6.61, or 5.8 percent, to close at $121.05 Thursday after hitting a new 52-week high of $122.63 earlier in the day.

Gross margin declined to 45.9 percent of revenues from 47.1 percent a year ago, with higher product costs outpacing a 65 basis point benefit from the closure of a European jeanswear facility. Cost of goods sold rose 14.3 percent to $2.03 billion.

By coalition, sales were up 22.8 percent for outdoor and action sports, to $717.9 million; 10.3 percent for jeanswear, to $613.4 million; 15.6 percent for imagewear, to $244.1 million; 10.3 percent for sportswear, to $120.3 million, and 11.3 percent for contemporary, to $118.1 million. Operating income was up at all of the coalitions except jeanswear, where it pulled back 0.4 percent to $94.4 million.

But Wiseman felt jeanswear’s performance, coming in a climate of rising costs, was particularly impressive. “Our jeanswear business in the Americas grew a couple of percentage points, a very strong indicator since we took prices up in the spring,” he said. “We expected unit erosion and we didn’t see it. We’re basically flat in profit dollars in jeanswear, and we’re thrilled.”

Full-year EPS guidance was raised to $7.50, up from the $7.25 provided in February, and expectations for increased revenue, excluding any possible additions from its imminent acquisition of Timberland, are now at 12 to 13 percent, up from about 10 percent previously, catapulting revenues to between $9.1 billion and $9.9 billion. VF executives noted on the quarterly conference call that increased prices in its U.S. jeans business would account for about $200 million of its additional revenue for the year. Even in the absence of unit erosion so far this year, Wiseman said the company is sticking with its “prudent assumption” of a high-single-digit drop off in jeanswear units in the second half of the year.

“We’re seeing the most pressure in the midtier and mass channels” on price, he said, adding, “but if you can create a compelling product and talk to consumers, they show up and are ready to buy. We really don’t know how consumers are going to react, but we’ve been conservative in our plans.”

load comments
blog comments powered by Disqus