Byline: Vicki M. Young

NEW YORK — A one-time charge for a change in accounting principle left VF Corp. with a nearly $450 million first-quarter loss, but contrary to expectations of an earnings decline, operating results improved and landed 12 cents above estimates.
For the three months ended March 30, the loss was $448.3 million, or $4.11 a diluted share, against income of $77.5 million, or 67 cents in the year-ago quarter. Excluding the effect of a change in accounting policy for goodwill, income was up 1.9 percent to $79 million, or 69 cents. The company had projected a double-digit earnings-per-share decline, but improved margins allowed the firm to beat analysts’ consensus expectations of 57 cents. Excluding the additional impact of previously announced restructuring actions and business exits, income increased to $80.5 million, or 70 cents in the quarter. Restructuring charges of 4 cents a share were offset by a 2-cent gain on the sale of assets, including the Jantzen swimwear business acquired by Perry Ellis International, and a 1-cent gain on the operations of exited businesses.
Sales in the period fell 10.6 percent to $1.27 billion from $1.42 billion, mostly due to the poor apparel market and the exit from the firm’s private label knitwear and Jantzen businesses. Excluding divested or discontinued businesses, sales in the quarter dropped 9 percent. The company’s restructuring initiatives were announced in November 2001.
Shares of VF on Tuesday closed at $43.84, up 38 cents, or 0.9 percent, in trading on the New York Stock Exchange.
Mackey J. McDonald, chairman and chief executive officer, said in a statement, “Our disciplined, conservative approach to planning and managing our businesses and our unrelenting focus on improving our return on capital are paying off in the form of better-than-anticipated earnings and cash flow. The benefits of the actions taken last year are clearly reflected in the improvement in the margins of our core businesses this quarter, and we expect additional improvement as the year progresses.”
For the quarter, inventories were down $300 million compared with a year ago. Cash increased more than $125 million, while total debt declined $400 million. Cash flow from operations reached $131 million, the highest such first-quarter mark in the company’s history. The focus on cash generation and inventory management is consistent with the firm’s long-term objective of a 17 percent return on capital, VF said.
Domestic jeanswear sales were down 10 percent in the quarter, due in part to inventory reductions taken by certain customers. Sales in the company’s international jeans and outdoor businesses were flat compared with prior-year levels. Sales in the domestic intimate apparel business declined 4 percent, while imagewear sales dropped 23 percent. VF said it expects sales comparisons to improve as the year progresses.
Reflecting the better-than-expected first-quarter earnings results, VF revised guidance for 2002, with full-year EPS expected to rise by 15 percent from prior-year levels, up from $2.68 in 2001. The estimate includes the absence of goodwill amortization expense in 2002, made possible by the accounting change, and excludes nonrecurring items associated with restructuring costs. Adjusting for the change in accounting for goodwill, the expected increase in EPS for 2002 is 5 percent, versus previous guidance that EPS would be flat to up slightly for the year.
McDonald told Wall Street analysts on a conference call, “Inventories at retail continue to be well controlled, even a little light in some cases.” The ceo noted that the mass channel accounts for 40 percent of domestic sales.
The firm, McDonald said, expects to complete its restructuring by the middle of this year.

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