VF Corp. isn’t shifting gears just because it missed Wall Street’s expectations for third-quarter earnings per share and sales.
Eric Wiseman, chairman and chief executive officer, said in a telephone interview that the group is continuing with plans on the innovation front as it – and most likely other apparel firms and retailers – weathers a challenging economic backdrop where consumers are thinking twice about their spending.
As part of its Innovation Agenda, an initiative that began in September 2010, the company is using technology to push newness in its offerings, particularly in jeanswear. While comfort and fit solutions are the most obvious choices for its big Lee and Wrangler denim brands – “these jeans feel and shape differently for him and her,” according to Wiseman – crushed stone could be changing how consumers in the East wear their jeans.
“We launched Jade Fusion in China in May. It is jeans with the mineral jade woven into the jeans. We know from science that it cools you,” Wiseman said.
The product, found in Lee jeans, is being rolled out to the rest of China, after a test run in Hong Kong. Wiseman said VF is considering other wearables for the same imbedded concept. “We’re having talk around VF on where else can that technology be relevant to the consumer. Probably not in Russia, but we’re already thinking about [introducing it in] India,” the ceo said.
Even newer is Magna Fusion, relying on the same technology using crushed igneous rock. The theory is the wearer’s body heats the rock, which then holds in the heat to keep them warm. Magna Fusion, available last month, is in the test phase.
“Embedding was not doable five years ago. Now it works,” Wiseman said.
The innovation at VF goes beyond jeanswear. Given the buying strength from the Millennials and Gen Z behind it, Wiseman said the JanSport brand is looking at “life without backpacks.” Noting that students now have fewer textbooks and more electronic options, Wiseman said the brand is “reprioritizing its agenda. People still carry stuff – it could be sunglasses, an iPad, gym clothes and shoes or lunch – particularly young people…. They still need stuff to carry their life with them [and] the consumer we’re talking to are asked how are you living your life so we can deliver products that work for them.”
He noted an accessories item called the digital burrito pouch developed for the younger consumer: “It really does look like a burrito wrap. Cords and adapters are tossed into one mess, instead of scattered all over your bag. [The case] is relevant to Gen Z; it’s not a serious attachment carrying bag,” the ceo said.
As for the latest quarterly results, profits for the three months ended Oct. 3 fell 2.3 percent to $459.9 million, or $1.07 a diluted share, from $470.5 million, or $1.08, a year ago. Total revenues rose 2.6 percent to $3.61 billion from $3.52 billion, which included a 2.8 percent gain in net sales to $3.58 billion from $3.49 billion. Wall Street was expecting earnings per share of $1.12 on sales of $3.67 billion.
By category, on a currency neutral basis, the outdoor and action sports coalition grew 13 percent, while jeanswear was up 4 percent. Imagewear was up 1 percent, while sportswear fell 1 percent during the quarter. Contemporary brands fell 13 percent in the period.
Wiseman said VF’s 8 percent revenue growth on a constant currency basis is a good growth rate for apparel firms. “We did better in September, but the quarter started out slow. Traffic was down; it wasn’t just us,” he said. And while currency was a factor in the top line and bottom line for the quarter, it’s a trend that will likely continue in the fourth quarter.
The company took down guidance for the year, now expecting growth – on a currency neutral basis – at 7.5 percent instead of 8 percent. Adjusting for expected negative changes in foreign currency during the third quarter, the company said EPS for the full year is expected to rise by 3 percent to $3.18, versus an adjusted $3.08 in 2014.
