VF PROFITS FOR QUARTER ON TARGET
Byline: Thomas J. Ryan
NEW YORK — VF Corp. Tuesday registered a second-quarter victory as net income met analysts’ forecasts and, for the first time since the first quarter of 1999, exceeded prior-year performance.
But the Greensboro, N.C.-based apparel giant warned that the integration of four acquisitions — North Face, Eastpak, Chic and Gitano — this year could cost as much as $17 million in the second half and consequently dilute full-year earnings.
Net income for the quarter ended July 1 was $80.8 million, or 69 cents a diluted share, 1.5 percent higher than the prior year’s level of $79.6 million, or 64 cents. The modest improvement in earnings wasn’t matched by revenues, which fell 1 percent to $1.35 billion from $1.36 billion in the 1999 quarter.
“Sales in our core businesses were slightly better than we had anticipated,” said Mackey McDonald, chairman and chief executive, in a statement. “We also achieved strong profit improvements at Lee and in our European jeanswear businesses, both of which experienced difficulties last year.”
Prior-year earnings included expenses to exit the Jantzen women’s sportswear business.
Last year, VF said earnings would have equaled 69 cents a share excluding the Jantzen charge. But McDonald said that excluding recent acquisitions, it earned 72 cents in the latest quarter.
Sales were relatively flat across VF’s domestic jeans, intimate apparel, knitwear and workwear businesses. International jeans sales declined in the quarter, largely due to currency fluctuations, but VF said economic conditions in key European markets “appear to have stabilized.”
Daypack sales increased during the quarter due to higher sales of JanSport and the recent acquisition of Eastpak. Playwear, its children’s wear division, increased sales by 22 percent, led by strength in the Nike licensed business and “solid increases” in the Healthtex and Lee brands.
Gross margins improved to 34.9 percent of sales from 33.8 percent, and operating margins lifted to 10.8 percent from 10.6 percent. Higher profitability was seen in both its domestic and European jeans businesses, intimate apparel, playwear and daypacks. These gains offset “integration issues” from acquisitions in 1999 that depressed profits in its workwear operations.
“Our businesses are in good shape and we have largely overcome the difficulties we faced last year, although Workwear continues to experience margin pressure as they integrate their four acquired businesses,” said McDonald.
McDonald said the acquisitions made this year will have “a more positive impact on sales in the second half” but said “near-term transitional operating issues” could create earnings dilution this year of approximately 10 cents to 15 cents a share, or between $11 million and $17 million.
“VF’s formidable operating, inventory and financial management skills are being applied to these new companies so that we can quickly capture their sales and earnings potential,” said McDonald.
“We remain tremendously excited about the long-term prospects for all our acquired companies, including The North Face, Eastpak, Chic and Gitano. These businesses will fill gaps in our brand portfolio that we have been seeking to fill for some time and offer new platforms for growth. Looking forward, we continue to expect improved profitability and earnings accretion from our acquisitions next year.”
In the half, earnings dipped 2.3 percent to $161.4 million from $165.1 million. Earnings per share rose to $1.37 from $1.33 due to a stock buyback program. Sales were flat at $2.72 billion.