The denim business may have turned a corner.
That’s according to VF Corp. chief Eric Wiseman, who stressed that the improvement isn’t universal and it remains focused on VF’s widely distributed Wrangler and Lee brands.
“There’s definitely momentum happening in jeanswear,” he told analysts on a Friday morning conference call after the company beat sales and profit estimates and lifted full-year expectations for earnings per share.
Wiseman described the Jeanswear Coalition’s currency-neutral 4 percent sales increase — 0.4 percent on a reported basis to $608.2 million — in the second quarter as “a result we’re particularly proud of.” Operating profit for the unit grew 4.4 percent to $104.6 million.
Combined with first-quarter sales gains, Jeanswear sales for the first half were up 0.9 percent to $1.31 billion, and 5 percent excluding currency fluctuations, while the unit’s operating income picked up 3.1 percent to $236.5 million, or 6 percent at neutral currency.
Wiseman noted it was the best first-half revenue performance for the coalition since 2011.
Wrangler’s business, up 4 percent on a reported basis, was strongest in the Americas, where sales grew at a mid-single-digit pace. Lee’s sales in the Americas dropped at a mid-single-digit pace in the Americas although, including currency changes, they declined 4 percent globally.
The signs of a turnaround, while hardly overwhelming, prompted Greensboro, N.C.-based VF to lift its revenue expectations for the coalition for the full year. At constant currency, it now expects a mid-single-digit increase in Jeanswear revenues versus the low-single-digit gain expected earlier.
But VF’s experience with its second-largest coalition, behind Outdoor & Action Sports, is hardly an accurate reflection of the general composition of the market. About two-thirds of it is male, with Wrangler skewing about 80 percent in that direction and Lee about 40 percent male.
Retail sales of jeans in the U.S. are dominated by women, according to The NPD Group research firm. In the 12 months ended in May, women’s jeans were responsible for about $7.9 billion in sales versus $5.4 billion of men’s jeans sales, close to a three-to-two ratio. In the most recent NPD figures, men’s jeans sales were flat while women’s continued to lose ground, with sales off 5.5 percent.
“The jeanswear business is healthy, particularly the male side of the business,” Wiseman told WWD. “Male denim is getting stronger, particularly when men see things at retail they haven’t seen before, like Wrangler’s Advanced Comfort that helps keep the wearer cool.
“Female denim seems to be stabilizing — not as strong as men’s but certainly stronger than a year ago,” he said.
VF has taken a proactive stance with Wrangler and Lee with its channels of distribution in the U.S. as well as its product development globally. It’s expanded into the middle tier, particularly its western-focused products, and taken Lee into the department store channel.
While Advanced Comfort has been heavily marketed in the Americas, Lee took a different approach to temperature management in China, launching Jade Denim, a jean made from fabric blended with crushed jade stones and substituting a natural substance for processes and materials.
“It’s done really well,” the ceo said. “We probably won’t have any left over.”
VF has a focused view of the struggling premium denim sector through its Contemporary Coalition, which houses the Seven For All Mankind brand, and its clear view of the contemporary space in U.S. stores.
Sales in the Contemporary Coalition in the quarter fell 9.7 percent to $86.9 million and were down 10 percent at constant currency, while operating profit sank 87.1 percent to $1.1 million and was down 83 percent at constant currency.
While the U.S. portion of the coalition’s sales were down in the low-double digits, the small international segment of the group was up in the low-double digits.
“Seven is stable and, within that, the men’s side of it is good and the women’s is a little tough,” Wiseman noted.
The contemporary brands are built to do business in large cities and tourist destinations and “they have been disproportionately hit by the drop in tourists,” Wiseman said. “We are investing in these areas to make them happen. We believe we can win in premium denim with Seven. They actually are winning share, but it’s a very tough time in a very tough market.”
Overall for the three months ended July 4, VF’s net income rose 8.3 percent to $170.8 million, or 40 cents a diluted share, compared to $157.7 million, or 36 cents, in the year-ago period. That exceeded analysts’ expectations for EPS of 36 cents. On a currency neutral basis, EPS rose 22 percent.
Revenues also beat Wall Street estimates, rising 4.7 percent in the quarter to $2.51 billion from $2.4 billion in the 2014 quarter. At constant currency, revenues would have risen 10 percent, VF said.
The Outdoor & Action Sports Coalition, which accounts for more than 55 percent of the company’s sales, delivered a 9.2 percent advance in revenues, to $1.4 billion, in the quarter with a 3.3 percent gain in operating profit, to $134.9 million. At constant currency, sales were up 16 percent and profits up 17 percent, VF said.
For the first half, net income rose 1 percent to $459.5 million as revenues were up 3.3 percent to $5.35 billion.
Revenue expectations were unchanged, although the forecast for earnings per share was raised to $3.22, from the $3.20 estimate provided on May 1.
Still, shares of the firm, up nearly 2 percent earlier in the day, ended Friday’s trading session down 0.2 percent at $74.50 as the Dow Jones Industrial Average and S&P 500 fell 0.9 percent and 1.1 percent, respectively.