VF reports Second Quarter Fiscal 2019 results; raises dividend and full year Fiscal 2019 Outlook

  • Revenue from continuing operations increased 15 % (up 16 % in constant dollars) to USD 3.9 billion; revenue from continuing operations increased 6 % (up 7 % in constant dollars) excluding the revenue contribution from acquisitions;
  • Active segment revenue increased 19 % (up 20 % in constant dollars) including a 26 % (27 % in constant dollars) increase in Vans® brand revenue; Outdoor segment revenue increased 6 % (up 7 % in constant dollars) including a 5 % (7 % in constant dollars) increase in The North Face® brand revenue and a 5-%age point revenue growth contribution from acquisitions;
  • International revenue increased 13 % (up 15 % in constant dollars), including a 9-%age point revenue growth contribution from acquisitions;
  • Direct-to-consumer revenue increased 19 % (up 20 % in constant dollars), including a 6-%age point revenue growth contribution from acquisitions; Digital revenue increased 48 % (up 49 % in constant dollars), including a 17-%age point revenue growth contribution from acquisitions;
  • Gross margin from continuing operations decreased 10 basis points to 50.1 %; on an adjusted basis, gross margin was in line with the prior year at 50.2 %; excluding the impact of acquisitions, on an adjusted basis, gross margin increased 70 basis points to 50.9 %;
  • Earnings per share from continuing operations was USD 1.26. Adjusted earnings per share from continuing operations increased 19 % (up 21 % in constant dollars) to USD 1.43, including an USD 0.08 contribution from acquisitions;
  • Full year fiscal 2019 revenue is now expected to increase at least 11 % to at least USD 13.7 billion;
  • Full year fiscal 2019 adjusted earnings per share is now expected to be USD 3.65, reflecting an increase of 16 %; and,
  • Quarterly dividend increased by 11 % to USD 0.51 per share.

VF Corporation reported on October 19, 2018 financial results for its second quarter ended September 29, 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®, Altra®, Reef®, and Jeans Spin-Off Transaction and Deal Related Expenses, Costs Related to Office Relocations and the Provisional Impact of U.S. Tax Legislation.” Unless otherwise noted, “reported” and “adjusted” amounts are the same.

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. 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 included the operating results of these businesses in discontinued operations through their respective dates of sale.

Adjusted Amounts – Excluding Williamson-Dickie, Icebreaker®, Altra®, Reef®, and Jeans Spin-Off Transaction and Deal Related Expenses, Costs Related to Office Relocations 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 and integration of Williamson-Dickie, Icebreaker® and Altra®, and the estimated losses on sale related to the expected divestitures of the Reef® brand and the Van Moer business, which was acquired in connection with the Williamson-Dickie acquisition. The release also refers to transaction expenses associated with the planned spin-off of the Jeans business. Total transaction and deal related expenses, including the estimated losses on sale, were approximately USD 53 million in the second quarter of fiscal 2019 and USD 72 million in the first six months of fiscal 2019.

This release also refers to adjusted amounts that exclude costs primarily associated with the previously announced relocations of VF’s global headquarters and certain brands to Denver, Colorado. Total costs were approximately USD 11 million in the second quarter and first six months 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 net expense of approximately USD 16 million in the second quarter of fiscal 2019 and USD 13 million in the first six months of fiscal 2019.

Combined, the above net charges negatively impacted earnings per share by USD 0.17 during the second quarter of fiscal 2019 and USD 0.20 during the first six months 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.

“VF’s second quarter results were strong driven by our core brands, the company’s international and direct-to-consumer platforms, and our work businesses,” said Steve Rendle, Chairman, President and Chief Executive Officer. “As we move into the second half of our fiscal year, we are confident in our growth engines as evidenced by the increase in both our dividend and full year outlook. We continue to invest behind our strategic growth priorities, and the actions we are taking continue to advance our journey toward transforming VF into a purpose-led, performance-driven, consumer centric organization focused on and committed to delivering superior returns to shareholders.”

Second Quarter Fiscal 2019 Income Statement Review

  • Revenue increased 15 % (up 16 % in constant dollars) to USD 3.9 billion, including a USD 324 million revenue contribution from the Williamson-Dickie, Icebreaker® and Altra® acquisitions. Excluding acquisitions, revenue increased 6 % (up 7 % in constant dollars), driven by VF’s largest brands, international and direct-to-consumer platforms, and Active and Work segments.
  • Gross margin declined 10 basis points to 50.1 %, as the impact of acquisitions was partially offset by a mix-shift toward higher margin businesses and continued focus on fundamentals. On an adjusted basis, gross margin was in line with the prior year at 50.2 % due to the impact of acquisitions. Adjusted gross margin, excluding acquisitions, increased 70 basis points to 50.9 %.
  • Operating income on a reported basis was USD 659 million. On an adjusted basis, operating income increased 19 % to USD 690 million, including a USD 40 million contribution from acquisitions. Operating margin on a reported basis declined 10 basis points to 16.9 %. Adjusted operating margin increased 60 basis points to 17.7 %. Adjusted operating margin, excluding acquisitions, increased 100 basis points to 18.1 %.
  • Earnings per share was USD 1.26 on a reported basis. On an adjusted basis, earnings per share increased 19 % (21 % in constant dollars) to USD 1.43, including an USD 0.08 contribution from acquisitions.

Balance Sheet Highlights

Inventories were up 22 % compared with the same period last year. Excluding the impact of acquisitions, inventories increased 5 %. 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 at least USD 13.7 billion, reflecting an increase of at least 11 % which compares to the previous expectation of revenue between USD 13.6 billion and USD 13.7 billion. The updated revenue outlook includes the negative impact of the expected divestitures of the Reef® brand and the Van Moer business. By segment, revenue for Outdoor is now expected to increase 7 % to 8 % versus the previous expectation of a 6 % to 8 % increase; revenue for Active is now expected to increase 14 % to 15 % versus the previous expectation of a 13 % to 14 % increase; revenue for Work is still expected to increase more than 35 %; and, revenue for Jeans is now expected to decline 1 % to 2 % versus the previous expectation of revenue in line with the prior year.
  • International revenue is still expected to increase between 12 % and 13 %.
  • Direct-to-consumer revenue is now expected to increase between 12 % and 14 % versus the previous expectation of an 11 % to 13 % increase. Digital revenue is still expected to increase more than 30 %.
  • Adjusted Gross margin is still expected to approximate 51 %.
  • Adjusted Operating margin is now expected to increase 80 basis points to 13.5 %, versus the previous expectation of 13.4 %.
  • Adjusted Earnings per share is now expected to be USD 3.65, reflecting an increase of 16 %. This compares to the previous expectation of USD 3.52 to USD 3.57.
  • Cash flow from operations is now expected to approximate USD 1.8 billion versus the previous expectation of cash flow from operations to exceed USD 1.7 billion.
  • Other full year assumptions include an effective tax rate of about 16 % (down from 16.5 % previously) and capital expenditures of approximately USD 275 million.

Dividend Declared

On October 16, 2018, VF’s Board of Directors declared a quarterly dividend of USD 0.51 per share, reflecting a 11 % increase over the previous quarter’s dividend. This dividend will be payable on December 20, 2018, to shareholders of record at the close of business on December 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.

https://www.vfc.com