VF Corp. is ready to make a great leap forward with Timberland.
VF on Wednesday unveiled plans to expand the footwear brand to $3.1 billion in sales by 2019, 82.4 percent above the $1.7 billion projected for the current year and more than twice the $1.5 billion registered in 2012, its first full year as a VF property following the acquisition of Timberland for $2 billion three years ago this month.
VF last year had forecast Timberland sales of $2.3 billion in 2017, when VF expects to tally $17.3 billion in annual sales.
As it builds revenues in the aftermath of a two-year transition, referred to on several occasions as a “reboot,” to modify merchandising and operations and get a better grasp of both the worldwide market for the brand and the consumers who gravitate toward its hybrid outdoor-industrial aesthetic, the company expects to lift its operating margin to about 18 percent of sales from just under 13 percent currently and modify its retail model toward one more focused on full-price rather than promotional selling.
It plans to do this while staying true to Timberland’s traditions of rugged individualism and top-to-bottom sustainability and at the same time embracing VF’s dedication to both operating discipline and innovation. Timberland’s Stratham, N.H., headquarters will be the site of VF’s footwear innovation center.
“We’re growing across all of our regions, across all of our categories, across all of our genders and also across all of our channels of distribution, which is probably the first time that’s ever happened to the brand,” Patrik Frisk, president of Timberland and of VF’s outdoor coalition in the Americas, told analysts at a presentation at Timberland headquarters.
The addition of $1.4 billion in Timberland volume over a five-year span includes plans to lift apparel revenues to $680 million, representing a compound annual growth rate of 14 percent over this year’s projected $350 million, while the dominant footwear business expands at a 12 percent rate to $2.5 billion from about $1.4 billion this year. Nearly half the growth will come in the Americas region, VF officials said, which is expected to grow to $1.4 billion from $770 million for a 14 percent CAGR. In Europe, the Middle East and Africa, CAGR is projected at 10 percent, with sales moving to $1 billion from about $620 million. Led by strength in China and South Korea, Asia-Pacific sales are expected to double to $620 million from $310 million.
VF envisions its global store count hitting 360 from 230 today, with a change in emphasis to full-price stores. J.P. Morgan analyst Matthew Boss, who lifted his price target for VF stock to $70 from $62, commented that “a key takeaway was the strategic move from an outlet-driven promotional [retail] model to a more full-price road map.”
Viewed by channel, wholesale revenues are expected to grow 70.2 percent to $2 billion from this year’s expected total of $1.18 billion, and the direct-to-consumer component to better than double to about $1.1 billion from $530 million. Within direct-to-consumer, e-commerce is expected to generate a 31 percent CAGR on its way to nearly $250 million in sales, from about $65 million now, while store volume will expand to more than $850 million from about $465 million today.
VF plans for direct-to-consumer revenues to shift to 42 percent full-price from 39 percent now and outlet to trend downward to 37 percent from 50 percent. E-commerce is projected to account for 21 percent, up from 11 percent.
After hitting a 52-week high of $66.72 in midday trading, VF shares pulled back 13 cents, or 0.2 percent, to end the trading day at $66.21.