The specter of rapid inventory growth haunted VF Corp. Friday as its shares fell 7.5 percent despite double-digit gains in first-quarter income and revenues and elevated guidance for the year.

This story first appeared in the May 2, 2011 issue of WWD. Subscribe Today.

The stock closed at $100.56 in trading on the New York Stock Exchange over concerns that its inventory levels grew faster than its sales projections. According to its quarterly statement, inventories at the end of the quarter on April 2 stood at $1.18 billion, 24.3 percent above the year-ago level of $952.2 million. The company’s revised guidance calls for revenue growth of 10 percent this year, versus an earlier forecast of between 8 and 9 percent.

Addressing the inventory issue on the company conference call, Robert Shearer, senior vice president and chief financial officer, said the increase “includes an impact from higher product costs, buying some goods earlier to secure lower costs, currency translation rates, as well as higher unit volumes to support revenue growth. Inventory days computed on a forward-looking basis only are up slightly year over year. In addition, as previously outlined, we expect cash generation to approximate $1 billion for the year.”

For the three months, income attributable to the Greensboro, N.C.-based apparel giant rose 22.7 percent to $200.7 million, or $1.82 a diluted share, from $163.5 million, or $1.46, in the year-ago quarter. Led by a 16.2 percent increase in sales of its outdoor and action sports coalition, to $788.2 million, revenues rose 11.9 percent to $1.96 billion from $1.75 billion, which included an 11.9 percent rise in sales to $1.94 billion from $1.73 billion. Gross margin expanded to 47.2 percent of sales from 46.7 percent a year ago.

Excluding onetime benefits totaling 11 cents a share, EPS was $1.71, 10 cents better than the $1.61 expected, on average, by analysts polled by Yahoo Finance.

Eric Wiseman, chairman and chief executive officer, told analysts that VF’s formula for continuing and expanded growth “includes the powerful brands supported by targeted investments to drive profitable growth, rapidly expanding international and direct-to-consumer platforms and new tools and processes designed to spur greater innovation across VF.”

He noted that price increases are just beginning to take effect at retail and that it’s still unknown how consumers will respond to the additional increases later in the year. Initial price increases in the jeanswear businesses “have gone smoothly and had less impact on unit volumes than we anticipated,” he said.

In raising its guidance, VF now expects earnings for the year of $7.25 a share, up from earlier forecasts of between $7 and $7.10.

Shearer said on the call that the company continues “to aggressively pursue acquisition opportunities.”

In response to a question from an analyst regarding share buybacks versus building cash for its war chest, the cfo said that the “priority remains on the acquisition front,” but that the company could adjust and buy back some shares later in the year if it doesn’t make an acquisition.

VF’s brand portfolio includes Wrangler, Lee, The North Face, Seven For All Mankind, JanSport, Nautica, Vans and John Varvatos.


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