Byline: Melanie Kletter

NEW YORK — Citing continued weakness in mid-tier department stores, VF Corp. warned Tuesday that its third-quarter earnings are expected to come in 10 to 15 percent below its earnings of 98 cents a basic share in last year’s third quarter.
Wall Street’s consensus estimate had been $1.01 a share. On a diluted basis, per-share earnings in last year’s third quarter came to 96 cents.
“Poor sales comparisons and continued slow retail traffic in mid-tier department stores are taking a toll on our sales in some categories during the seasonally important period to an even greater degree than we had previously expected,” Mackey J. McDonald, president and chief executive officer, said in a statement. “In addition, sales in our key European markets remain under pressure, where consumer spending on apparel, particularly jeans, is running below prior-year levels.”
McDonald also said “it now appears unlikely that we will achieve record earnings this year.” In 1998, VF racked up its third consecutive year of record earnings and sales, with net income of $338.3 million, or $3.10 a diluted share, on sales of $5.48 billion.
McDonald said that the company is aggressively attacking the “channel challenge” faced by its Lee jeans and other mid-tier department store brands through a stronger flow of fashionable new merchandise and marketing communications.
Also on the positive side, McDonald noted that VF’s intimate apparel, mass market jeans, workwear, playwear and JanSport businesses continue to perform well.
“While too early to comment on next year, we believe the fundamentals of our business are healthy and we have great confidence in our ability to overcome these near-term challenges and return to more normalized growth levels,” he said. He reiterated that VF’s long-term targets are 8 to 10 percent growth in both sales and profits.
The latest news follows a company forecast in July when it stated that problems at department stores and in international jeans sales would slow earnings growth for 1999 to about 5 percent.
Now based on the latest guidance, it appears that full-year earnings will likely come in flat to lower than last year, pointed out analyst Carol Pope Murray, at Salomon Smith Barney.
For the full year, analysts had been expecting the company to earn $3.29 a share, compared with the $3.10 of last year.
Josie Esquivel, analyst at Morgan Stanley Dean Witter, said she cut her third-quarter earnings estimate to 80 cents a share from $1.05 following the announcement. For the year, she slashed her estimate to $2.95 a share from $3.30.
“A lot of their problems are in jeans, but more on the Lee side than the Wrangler side,” Esquivel said.
Further commenting on the year, McDonald said, “We knew that 1999 marked the beginning of a transitional period for VF, as we moved to new processes and systems designed to create a compelling strategic platform for future growth. While we continue to make progress in these initiatives, including our micromarketing and Consumer Response System (CRS) programs, and the addition of new forecasting and planning tools, we’ve had unexpectedly difficult retail issues both here and abroad.”
While McDonald did not identify the department stores seeing problems, Jack Pickler, analyst at Prudential Securities, as well as others, said the lagging “mid-tier department stores” are obviously Sears, Roebuck and J.C. Penney.” Both retailers last week reported disappointing same-store sales results for August and said third-quarter profits would not be up to expectations.
Pickler noted that what’s selling in department stores generally is “more fashion merchandise, and VF’s strength is in basics. It is a shift on the part of the consumer.”
In the second quarter, VF’s earnings — dented by charges related to the closing of its Jantzen’s women’s sportswear business — fell 8.3 percent to $79.6 million, or 64 cents a share, from $86.8 million, or 69 cents. Excluding the $12 million in pretax costs related to Jantzen, VF said per-share earnings in the quarter would have surpassed last year.
Third quarter earnings are scheduled to be released on Oct. 20.
VF shares slipped 1 to 35 Tuesday on the New York Stock Exchange. The news was announced as the market was closing.