VF Corp. is confident about its future, and is investing an additional $40 million to boost current momentum and fuel accelerated growth for 2018.
That decision came after the company posted second-quarter results that beat Wall Street’s consensus estimates for earnings per share and sales. The company’s president and chief executive officer Steve Rendle told investors and analysts during a conference call Monday, “Six months into the first of our 2021 strategy, our results are in line with expectations and, in fact, we’re doing somewhat better than we anticipated….We are in the early phases of our journey to become a more agile and consumer-centric organization, and [we are] encouraged by our strong start to 2017.” The company in March disclosed its new five-year strategic plan.
On Monday, VF said net income for the quarter ended July 1 doubled to $109.9 million, or 27 cents a diluted share, from $51.0 million, or 12 cents, a year ago. On an adjusted basis, diluted EPS for continuing operations was 29 cents. VF sold its licensing business in April and its contemporary brands group last August. The operations were listed as discontinued operations. Total revenues rose 1.7 percent to $2.36 billion from $2.32 billion, with net sales also rising 1.7 percent to $2.33 billion from $2.29 billion. Wall Street was expecting EPS of 28 cents on revenues of sales of $2.29 billion.
The company also updated its 2017 outlook, now expecting EPS to be $2.94 compared to its prior guidance of $2.89 to $2.94. Revenues were guided to about $11.65 billion. Wells Fargo analyst Ike Boruchow said VF “delivered their strongest top-line beat in years.”
In the call, Rendle said the updated guidance includes the expected gains from the $40 million incremental investment. He said the company “will continue to reshape our portfolio and accelerate growth,” and added that while the retailing environment is expected to remain uncertain, “we will investigate our largest growth opportunities to create momentum, rather than wait for it.”
In a telephone interview with Rendle and chief financial officer Scott Roe, the cfo said that while the company is “aggressively closing stores on lease expirations where they were not meeting profitability growth,” the company is also adding 50 new stores. He said the store openings would be the firm’s biggest and most successful formats. That translates to store openings at the company’s three largest brands — Vans, The North Face and Timberland.
According to Rendle, the key priority — M&A, because it’s about “shaping the portfolio as part of the five-year strategic plan — hasn’t changed since the company spoke about evolving the firm at its Investor Day meeting in March.
“We think there are plenty of opportunities in the marketplace. We are very active in that process,” the ceo said. And while both outdoors and action sports are at the center of VF’s core competency, Rendle said the company is “encouraging people to not think of VF as just an outdoor sports company and [to think of VF] more as a value creation company. Where are those new consumers and where can we use our capabilities and skills to unlock that growth?”
VF’s new workwear unit for the work-service industry is one example that leverages knowledge across the Red Kap and Bulwark FR teams with components from its Timberland and Wrangler businesses. The company is also looking closely at “what other activities [our consumers] are doing in their everyday lives and aligning that with the capabilities in our tool kit that we can use to move beyond just outdoor sports,” Rendle said. He acknowledged that this thinking doesn’t eliminate an outdoors brand from M&A consideration, but rather adds a different component to how the company evaluates potential acquisitions.
As for the innovation front, Rendle said, “All consumers today are looking for real innovation in aesthetics and performance….The connection to that is how to attach experience to what our brands do. Consumers are looking for purpose-oriented companies, whether social or environmental programs. [They are] looking for a higher meaning beyond just selling product. We’re putting a lot more attention to integrating our strategies in marketing and innovation and design to brand experience.”
At the Investor Day presentations, the company said its business is around four consumer categories centered on run, train, lifestyle and urban exploration, with mountain sports the pinnacle of that focus. To that end, The North Face is showcasing a new Summit Series collection for fall for men and women that features “insulation technology that is able to adapt to some degree to the temperature and moisture output of the user,” Rendle said. One jacket in the line that showcases the new product is the Ventrix. Further, the body optics and jade fusion technology in denim that are now available in Asian markets are being adapted to the Western body type and will soon be available in Europe and the U.S., Rendle said.
Vans has a new $90 footwear line that incorporates better cushioning technology. According to Rendle, the company is looking at how to leverage that innovation across its multiple brand platforms.
Separately, Eric C. Wiseman is slated to retire as VF’s executive chairman on Oct. 28. Rendle has been elected by the company’s board to succeed him as chairman. Wiseman’s retirement will complete VF’s planned leadership succession. Before becoming executive chairman, Wiseman was VF’s former chairman and ceo. Rendle became president and chief operating officer in June 2015, and then ceo this past January.
Shares of VF were trading up nearly 0.5 percent to close at $58.92 in Big Board trading.