A Vans storefront

Despite the big unknown on tariffs, VF Corp.’s getting bullish for fiscal 2019, driven by expected gains in its core Vans and The North Face brands and growth in its work category.

There’s been some concern in the apparel and footwear sector that President Trump might escalate the trade war with China with another round of tariffs next year.

Steve Rendle, VF’s chairman, president and chief executive officer, said while the latest round of tariffs was minimal to VF, the “next tranche has apparel and footwear tariff codes captured in that.”

As for timing, he said, “We have no idea when that will take place. Eleven percent of our cost of goods is goods bound for the U.S. that are made in China. That’s only 11 percent of our cost of goods. We’ve been managing that percentage down over the last number of years and we have the ability to continue to manage that down further.” The chairman added that VF, if necessary, has the ability to work with its broad supply chain to bring that level down to zero and have its supply network in China produce goods meant just for China.

“I hope the U.S. can solve these questions with our Chinese trading partner before the American consumer will have to absorb those increases,” Rendle said.

Asked if VF would have to pass along those increases, if another round of tariffs is imposed, Rendle said it was too early to tell. “That’s yet to be seen if it needs to be passed to the consumer. How big will it be? How much can we mitigate it with our diversified supply chain? We will flex first to mitigate. [We need to know] what it is that we are facing,” Rendle said.

Rendle, along with Scott Roe, chief financial officer, spoke with WWD after the company posted second-quarter results Friday that bested Wall Street’s estimates for EPS and revenues.

The company reported adjusted EPS of $1.43 on revenues of $3.91 billion, versus Wall Street’s consensus estimate of EPS at $1.33 on revenues of $3.87 billion. The company raised full-year fiscal 2019 guidance by 11 percent to at least $13.7 billion, with adjusted EPS now expected to be $3.65. That compares with prior guidance of $13.6 billion to $13.7 billion in revenues, on adjusted EPS of between $3.52 and $3.57.

Roe said in the telephone interview that the full-year projection for growth at Vans is 18 to 19 percent, although currently the pace of growth is slightly faster than expected. He said the company saw acceleration in The North Face brand, and is guiding growth of 7 to 8 percent following a rationalization of the business and better distribution. “Our full year projection for Timberland is 2 to 4 percent. That’s in line with what we’ve expected for this brand. We talk about Vans in a high-growth curve and North Face seeing [some] acceleration. Timberland is a year or two behind that,” Roe said.

Roe also said that the company’s work business has an “organic growth rate of 5 percent, in line with the long-term growth in the work category. As we do acquisitions, this is an area attractive for us.” The cfo explained that given VF’s supply chain and the branded lifestyle capability of some of the “work” brands, “We’re the best owner for these assets.”

Rendle said that VF’s work business is predominantly domestic, although “we are growing internationally through Williamson-Dickie.”

VF’s work portfolio includes Timberland Pro for footwear. The business segment includes boots built for day-long wearing, comfort, support and protection from elements and work site risks helped by a steel-toe construction. Work apparel also involves fabrications that are more rugged and incorporate stretch to different parts of the body. What’s key in building the business is that workers tend to wear their work apparel after work, so VF is injecting an element of style to function as the lines become lifestyle brands, according to Rendle. One thing he didn’t elaborate on was whether the company would look overseas for work brands to add to its portfolio since it plans to grow the international business. Rendle would only say that the company is “acquisitive,” and that looking overseas was a “good idea.”

Shares of VF fell 10.7 percent to $77.76 Friday on news that its jeans business fell 9 percent in the quarter. The company said in August that it plans to spin off its jeans business — Lee and Wrangler — into a separate, publicly traded business.

According to Rendle, the company elected to do the spin-off so each group can garner the best reinvestment to grow its respective division, and that the decision was less about declining denim sales. “When we look at our investment choices, we will go first to our fastest growing businesses. Other brands may not be getting the level of what they require to get to their full investment objectives,” the ceo said.

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