VF EARNINGS FALL 8.4%, PROFIT WARNING ISSUED
Byline: Scott Malone
NEW YORK — Pinched by retailer efforts to cut inventories in the face of an uncertain economic environment, VF Corp. reported an 8.4 percent drop in second-quarter earnings Tuesday, and warned that it expected its results for the rest of the year to miss Wall Street’s expectations.
While it sees rough waters ahead, the Greensboro, N.C.-based company said it had made it through the choppy last three months without getting swamped. Net income for the quarter ended June 30 was $69.4 million, or 60 cents a diluted share, ahead of the First Call consensus of 55 cents a share. In the prior-year quarter, the company earned $75.7 million, or 65 cents a diluted share. Sales dipped slightly to $1.32 billion from $1.33 billion a year earlier.
Chairman and chief executive officer Mackey McDonald said the company remained focused on cutting costs, lowering inventories and improving the operations of its recent acquisitions, which include The North Face, Chic and Gitano. He also warned that the retail outlook is uncertain.
“While we’ve been planning our business conservatively since the beginning of the year, the combination of continued slow retail traffic, poor same-store sales comparisons and conservative inventory planning by many of our customers is proving challenging to the topline,” he said in a statement.
The company said that it expects full-year earnings to come in at or slightly above last year’s level. Excluding special charges, which analysts factor out in making their forecasts, VF’s 2000 net income was $343.8 million, or $2.92 a share. Wall Street had been expecting 2001 earnings to come to $3.16 a share, which would have been an increase of 8.2 percent.
Retail sales have been shaky in recent months. Last week, a number of top chains reported that same-store sales slipped in June, though some observers reported that aggressive markdown actions by top chains left them well positioned for the rest of the summer.
This year’s slowdown in retail spending came on faster than some had expected, and caused goods to back up at many vendors’ warehouses, as retailers sharply reduced order levels. Other top apparel suppliers, including Levi Strauss & Co., also have been scrambling to reduce inventories in the face of slowing spending.
VF reported that its inventory-cutting efforts had shown results, with its supply of goods rising 2 percent in the second quarter, compared with a 14 percent run-up in the first quarter.
But inventory-cutting took its toll on margins, particularly in the jeanswear sector, the company said. McDonald said the company will continue to aggressively cut inventories and aims to lower them by $100 million by the end of the year. At the end of the quarter, overall inventories stood at $1.21 billion.
By segment, the company recorded flat jeans sales in the domestic market and an 18 percent rise in European jeans sales. Intimate apparel sales rose 3 percent, while sales at the outdoor unit — buoyed by last year’s acquisitions of the North Face and Eastpak brands — surged ahead 55 percent.
At its Imagewear business, which primarily makes corporate apparel, sales were off 9 percent. The playwear and Jantzen units also saw sales slide.
For the six months, net income was $146.9 million, or $1.27 a diluted share, up less than one percent from a year ago. Sales were up 2.3 percent to $2.75 billion.
VF released its results after the close of trading. On the New York Stock Exchange, its shares eased 44 cents, to close at $36.95.