VF Vanity Fair Reports First Quarter Fiscal 2019 Results; Raises Full Year Fiscal 2019 Outlook

  • Revenue from continuing operations increased 23 % (up 21 % in constant dollars) to USD 2.8 billion; revenue from continuing operations increased 12 % (up 10 % in constant dollars) excluding the revenue contribution from acquisitions;
  • Active segment revenue increased 25 % (up 22 % in constant dollars) including a 35 % (32 % in constant dollars) increase in Vans® brand revenue; Outdoor segment revenue increased 6 % (up 3 % in constant dollars) including an 8 % (5 % in constant dollars) increase in The North Face® brand revenue and a 6-%age point revenue growth contribution from acquisitions;
  • International revenue increased 27 % (up 22 % in constant dollars), including a 13-%age point revenue growth contribution from acquisitions;
  • Direct-to-consumer revenue increased 22 % (up 20 % in constant dollars), including a 6-%age point revenue growth contribution from acquisitions; Digital revenue increased 54 % (up 50 % in constant dollars), including a 21-%age point revenue growth contribution from acquisitions;
  • Gross margin from continuing operations increased 70 basis points to 50.3 %; on an adjusted basis, gross margin increased 90 basis points to 50.5 %; excluding the impact of acquisitions, on an adjusted basis, gross margin increased 170 basis points to 51.3 %;
  • Earnings per share from continuing operations was USD 0.40. Adjusted earnings per share from continuing operations increased 62 % (up 56 % in constant dollars) to USD 0.43, including a USD 0.04 contribution from acquisitions;
  • Full year fiscal 2019 revenue is now expected to be in the range of USD 13.6 billion to USD 13.7 billion, reflecting an increase of 10 % to 11 %; and,
  • Full year fiscal 2019 adjusted earnings per share is now expected to be in the range of USD 3.52 to USD 3.57, reflecting an increase of 12 % to 14 %.

VF Corporation reported financial results for its first quarter ended June 30, 2018. All per share amounts are presented on a diluted basis. This release refers to “reported” and “constant dollar” amounts, terms that are described under the heading “Constant Currency – Excluding the Impact of Foreign Currency.” Unless otherwise noted, “reported” and “constant dollar” amounts are the same. This release also refers to “continuing” and “discontinued” operations amounts, which are concepts described under the heading “Discontinued Operations – Nautica® Brand Business and Licensing Business.” Unless otherwise noted, results presented are based on continuing operations. This release also refers to “adjusted” amounts, terms that are described under the heading “Adjusted Amounts – Excluding Williamson-Dickie, Icebreaker® and Altra® Transaction and Deal Related Expenses and the Provisional Impact of U.S. Tax Legislation.” Unless otherwise noted, “reported” and “adjusted” amounts are the same.

“VF’s first quarter results were strong, driven by continued broad based acceleration across our core brands and platforms,” said Steve Rendle, Chairman, President and Chief Executive Officer. “We are executing well against our 2021 growth plan and continuing on our journey to reshape the portfolio and transform VF into a purpose-led, performance driven, consumer- centric organization focused on and committed to delivering superior returns to shareholders.”

Reportable Segment Change

In light of recently completed acquisitions, divestitures, and organizational realignments, the company has changed its reporting structure to better support and assess the operations of the business. The company’s new reportable segments are Outdoor, Active, Work and Jeans. In this release, the company has recast historical financial information to reflect the new reportable segments. The recast historical financial information is included in the attached supplemental financial tables.

Constant Currency – Excluding the Impact of Foreign Currency

This release refers to “reported” amounts in accordance with U.S. generally accepted accounting principles (“GAAP”), which include translation impacts from foreign currency exchange rates. This release also refers to “constant dollar” amounts, which exclude the impact of translating foreign currencies into U.S. dollars. Reconciliations of GAAP measures to constant currency amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

Discontinued Operations – Nautica® Brand Business and Licensing Business

On April 30, 2018, the company completed the sale of its Nautica® brand business. Accordingly, the company has classified the assets and liabilities of the Nautica® brand business as held-for-sale through the date of sale and has included the operating results of this business in discontinued operations for all periods presented.

On April 28, 2017, the company completed the sale of its Licensed Sports Group (LSG) business, including the Majestic® brand. In conjunction with the LSG divestiture, VF executed its plan to entirely exit the licensing business and completed the sale of the assets of the JanSport® brand collegiate business in the fourth quarter of 2017. Accordingly, the company has removed the assets and liabilities of the licensing business as of the dates noted above and included the operating results of these businesses in discontinued operations for all periods presented.

The company’s after-tax net income from discontinued operations was USD 0.4 million in the first quarter of fiscal 2019, which includes the operating results of the Nautica® brand business during the period through the date of sale.

Adjusted Amounts – Excluding Williamson-Dickie, Icebreaker® and Altra® Transaction and Deal Related Expenses and the Provisional Impact of U.S. Tax Legislation

This release refers to adjusted amounts that exclude transaction and deal related expenses associated with the acquisitions of Williamson-Dickie, Icebreaker® and Altra®. Total transaction and deal related expenses were approximately USD 19 million in the first quarter of fiscal 2019.

Adjusted amounts in this release also exclude the provisional amounts recorded due to recent U.S. tax legislation. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. Measurement period adjustments related to the provisional net charge resulted in a benefit of approximately USD 3 million in the first quarter of fiscal 2019.

Combined, the above net charges negatively impacted earnings per share by USD 0.03 during the first quarter of fiscal 2019. All adjusted amounts referenced herein exclude the effects of these amounts.

Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.

First Quarter Fiscal 2019 Income Statement Review

Revenue increased 23 % (up 21 % in constant dollars) to USD 2.8 billion, including a USD 249 million revenue contribution from the Williamson-Dickie, Icebreaker® and Altra® acquisitions. Excluding acquisitions, revenue increased 12 % (up 10 % in constant dollars), driven by broad-based strength across VF’s international and direct-to- consumer platforms and Active and Work segments.

Gross margin improved 70 basis points to 50.3 %, as benefits from a mix-shift toward higher margin businesses and continued focus on fundamentals were partially offset by the impact of acquisitions. On an adjusted basis, gross margin increased 90 basis points to 50.5 %. Adjusted gross margin, excluding acquisitions, increased 170 basis points to 51.3 %.

Operating income on a reported basis was USD 231 million. On an adjusted basis, operating income increased 57 % to USD 250 million, including an USD 20 million contribution from acquisitions. Operating margin on a reported basis increased 130 basis points to 8.3 %. Adjusted operating margin increased 200 basis points to 9.0 %. Adjusted operating margin, excluding acquisitions, increased 210 basis points to 9.1 %.

Earnings per share was USD 0.40 on a reported basis. On an adjusted basis, earnings per share increased 62 % (56 % in constant dollars) to USD 0.43, including a USD 0.04 contribution from acquisitions.

Balance Sheet Highlights

Inventories were up 20 % compared with the same period last year. Excluding the impact of acquisitions, inventories increased 2 %. The company has USD 4 billion remaining under its current share repurchase authorization.

Adjusted Full Year Fiscal 2019 Outlook

The following outlook for fiscal year 2019 is on an adjusted basis and has been updated to include the following:

Revenue is now expected to be in the range of USD 13.6 billion to USD 13.7 billion, reflecting an increase of 10 % to 11 %, and includes more than a USD 150 million negative impact from unfavourable foreign currency exchange rates relative to the prior outlook. This compares to the previous expectation of revenue between USD 13.45 billion and USD 13.55 billion, which reflected a 9 % to 10 % increase. By segment, revenue for Outdoor is expected to increase 6 % to 8 %; revenue for Active is expected to increase 13 % to 14 %; revenue for Work is expected to increase more than 35 %; and, revenue for Jeans is expected to be about flat compared to the prior year.

International revenue is now expected to increase between 12 % and 13 % versus the previous expectation of a 13 % to 15 % increase. By geographic region, Europe revenue is expected to increase 12 % to 13 % (previously 13 % to 15 %); Asia Pacific revenue is expected to increase 14 % to 15 % (previously 15 % to 17 %); and, Americas (non-U.S.) revenue is expected to increase 9 % to 10 % (previously 10 % to 12 %).

Direct-to-consumer revenue is now expected to increase between 11 % and 13 % versus the previous expectation of an 8 % to 10 % increase. Digital revenue is now expected to increase more than 30 % versus the previous expectation of a more than 25 % increase.

Gross margin is still expected to approximate 51 %.

Operating margin is now expected to increase 70 basis points to about 13.4 %, versus the previous expectation of about 13.2 %.

Earnings per share is now expected to be in the range of USD 3.52 to USD 3.57, reflecting an increase of 12 % to 14 %, and includes about a USD 0.06 negative impact from unfavorable foreign currency exchange rates relative to the prior outlook. This compares to the previous expectation of USD 3.48 to USD 3.53, which reflected an increase of between 11 % and 13 %.

Cash flow from operations is now expected to exceed USD 1.7 billion (up from USD 1.6 billion previously).

Other full year assumptions include an effective tax rate of approximately 16.5 % (down from 17 % previously) and capital expenditures of approximately USD 275 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of USD 0.46 per share, payable on September 20, 2018 to shareholders of record on September 10, 2018.

VF Corporation outfits consumers around the world with its diverse portfolio of iconic lifestyle brands, including Vans®, The North Face®, Timberland®, Wrangler® and Lee®. Founded in 1899, VF is one of the world’s largest apparel, footwear and accessories companies with socially and environmentally responsible operations spanning numerous geographies, product categories and distribution channels. VF is committed to delivering innovative products to consumers and creating long-term value for its customers and shareholders.

www.vfc.com