VF Corp. is starting to see some payback in its efforts to keep its billion-dollar Wrangler and Lee jeanswear brands from getting typecast.
Eric Wiseman, chairman, president and chief executive officer of the Greensboro, N.C.-based apparel giant, told WWD that, while the effort is still in its “very early days,” the company has been able to place Wrangler, with its mass and Western channel distribution, in midtier stores, and the Lee brand, strongest in the middle tier of U.S. retailing, into department stores.
The company met analysts’ consensus estimates for lower first-quarter profits and higher sales in the period, on a reported basis, and reported higher sales and profits on both a recorded and currency-neutral basis in its jeanswear coalition, the second largest among the company’s five business units.
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Jeanswear sales were up 1.4 percent, to $699.7 million, and rose 6 percent without the impact of currency fluctuations, while operating income rose 2.1 percent to $131.9 million, ahead 7 percent without the currency effects.
While Lee in the U.S. continued to be hurt by what the company described as “ongoing challenges in the U.S. midtier channel,” its sales were down 1 percent on a reported basis overall and ahead 4 percent at constant currency. Wrangler worldwide, however, was up 5 percent, or 9 percent at constant currency.
“Our jeanswear business in the mass channel was unbelievably strong and that speaks volumes for the underlying strength of our jeans business,” Wiseman said. “That business is predominantly men’s and it was driven primarily by new products and new in-store execution. We did a lot of work to put ourselves in a position for that.”
Some of that work entailed exploring other channel vacancies for Wrangler. “Wrangler has a mass component and a Western component,” the ceo said, “but we’re finding more and more consumers shop across channels, which opens up a lot of opportunity.”
He noted that VF executives might be talking to J.C. Penney in its Plano, Tex., offices, “in the heart of the Western culture, and there’s an opportunity for Wrangler with Penney’s as well as with Kohl’s. But when we did tests with a midtier store, we found that Wrangler’s Western products sold best in the New York metropolitan area. It was very encouraging to us.
“Channel segmentation has been limiting in certain ways,” he added. “Wrangler also has a good tops business — a couple of hundred million dollars — that’s been built deliberately over the last 10 years.”
Even before VF began to look to place Wrangler elsewhere about 18 months ago, it was earlier exploring options for Lee. “Is the Lee customer shopping at Macy’s? Absolutely. And Macy’s has begun to roll out Lee product at its stores, as has Belk’s in a small way,” Wiseman commented.
In the three months ended April 4, VF reported net income of $288.7 million, or 67 cents a diluted share, 2.9 percent below the $297.2 million, or 67 cents, reported in the 2014 period. The result matched analysts’ consensus estimates. At constant currency, EPS would have risen 13 percent, the company said.
Revenues were up 2 percent to $2.84 billion, again matching estimates, from $2.78 billion in the prior-year quarter. Eliminating currency effects, revenues were up 8 percent.
The company’s Outdoor & Action Sports Coalition, its largest, saw revenues rise 2.1 percent to $1.61 billion with The North Face up 1 percent, Vans up 8 percent and Timberland flat. On a currency neutral basis, the coalition’s sales rose 10 percent while North Face was up 8 percent, Vans up 16 percent and Timberland up 10 percent. The group’s operating income dropped 5 percent to $260.8 million but would have risen 7 percent without currency fluctuations.
Operating profit for the company’s largest coalition fell 5 percent, to $260.8 million, while rising 7 percent on a neutral currency basis.
The company, which originally expected full-year EPS to rise 12 percent on a currency-neutral basis, lifted its projection to a 14 percent increase. The stock, down more substantially after the release of the results Friday morning, closed at $72.05, down 0.5 percent.
In his first conference call as VF’s chief financial officer, Scott Roe told analysts that the company would continue to consider share repurchases, although they weren’t its preference.
“Acquisitions remain the first priority, followed by dividends, and we’ve said consistently and we’ve demonstrated we won’t accumulate cash,” Roe stated. “So in the event that one of the first two levers are not available, then we would look at returning that to shareholders through [repurchases], which we have done over the last two years.”
Although it is regularly mentioned as a potential acquirer of companies , VF hasn’t made a major acquisition since it completed its purchase of Timberland for $2.3 billion in September 2011.