VF Reports Second Quarter Fiscal 2020 results; Raises Dividend and Reaffirms Full Year Fiscal 2020 Outlook

Revenue from continuing operations increased 5 % (up 7 % in constant dollars) to USD 3.4 billion; excluding acquisitions and divestitures, adjusted revenue increased 6 % (up 8 % in constant dollars);

    Active segment revenue increased 9 % (up 11 % in constant dollars) including a 14 % (16 % in constant dollars) increase in Vans® brand revenue; Outdoor segment revenue increased 4 % (up 6 % in constant dollars) including an 8 % (10 % in constant dollars) increase in The North Face® brand revenue;

    International revenue increased 4 % (up 8 % in constant dollars); China revenue increased 20 % (up 24 % in constant dollars);

    Direct-to-Consumer revenue increased 11 % (up 13 % in constant dollars); Digital revenue increased 15 % (up 17 % in constant dollars);

    Gross margin from continuing operations increased 90 basis points to 52.9 %; on an adjusted basis, gross margin increased 90 basis points to 53.1 %;

    Earnings per share from continuing operations was USD 1.61. Adjusted earnings per share from continuing operations increased 6 % (up 8 % in constant dollars) to USD 1.26;

    Full year fiscal 2020 adjusted revenue from continuing operations still expected to approximate USD 11.8 billion, reflecting growth of approximately 6 % (8 % on a constant dollar basis, excluding acquisitions and divestitures);

    Full year fiscal 2020 adjusted earnings per share from continuing operations still expected to be in the range of USD 3.32 to USD 3.37, reflecting growth of 16 % to 18 % (19 % to 21 % on a constant dollar basis, excluding acquisitions and divestitures); and,

    Quarterly dividend increased by 12 % to USD 0.48 per share.

VF Corporation (NYSE: VFC) on October 25, 2019, reported financial results for its second quarter ended September 28, 2019. 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 – Kontoor Brands Business.” Unless otherwise noted, results presented are based on continuing operations. This release also refers to “adjusted” amounts, a term that is described under the heading “Adjusted Amounts – Excluding Icebreaker®, Altra® and Jeans Spin-Off Transaction and Deal Related Expenses, Costs Related to Office Relocations and Specified Strategic Business Decisions, and the Impact of Swiss Tax Legislation.” Unless otherwise noted, “reported” and “adjusted” amounts are the same.

“We’re pleased with the strength of our second quarter and first half results, driven by our two largest brands and our international and direct-to-consumer platforms,” said Steve Rendle, Chairman, President and Chief Executive Officer. “The quality and fundamentals of our business remain solid as a result of the focus and strategic execution of our business teams around the globe. Despite an increasingly uncertain geopolitical and macroeconomic environment, we are confident in the trajectory of our business as we move into the second half of our fiscal year, as reaffirmed by our outlook. We remain deeply committed to transforming VF into a more consumer-minded and retail-centric organization while delivering superior returns to shareholders.”

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 and transactional 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. The “constant dollar” amounts also exclude the impact of foreign currency-denominated transactions in countries with highly inflationary economies. 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 – Kontoor Brands Business

On May 22, 2019, VF completed the spin-off of its Jeans business, which included the Wrangler®, Lee® and Rock & Republic® brands, as well as the VF OutletTM business, into an independent, publicly traded company under the name Kontoor Brands, Inc. (“Kontoor Brands”). Accordingly, the company has removed the assets and liabilities of the Jeans business as of this date and included the operating results and cash flows of the business in discontinued operations for all periods presented.

Adjusted Amounts – Excluding Icebreaker®, Altra® and Jeans Spin-Off Transaction and Deal Related Expenses, Costs Related to Office Relocations and Specified Strategic Business Decisions, and the Impact of Swiss Tax Legislation

This release refers to adjusted amounts that exclude transaction and deal related expenses associated with the acquisitions and integration of the Icebreaker® and Altra® brands. The release also refers to transaction expenses associated with the completed spin-off of the Jeans business. Total transaction and deal related expenses were approximately USD 9 million in the second quarter of fiscal 2020 and USD 22 million in the first six months of fiscal 2020.

This release also refers to adjusted amounts that exclude costs primarily associated with the previously announced relocation of VF’s global headquarters and certain brands to Denver, Colorado. The release also refers to costs related to strategic business decisions in South America and the operating results of jeanswear wind-down activities in South America following the spin-off of Kontoor Brands. Total costs were approximately USD 18 million in the second quarter of fiscal 2020 and USD 35 million in the first six months of fiscal 2020.

Adjusted amounts in this release also exclude the impact of recent Swiss tax legislation. On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Act”). Certain provisions of the Swiss Tax Act were enacted during the second quarter of fiscal 2020, which resulted in adjustments to deferred tax positions of approximately USD 164 million for the second quarter and first six months of fiscal 2020. It is expected that additional provisions may be enacted in subsequent periods, resulting in further adjustments.

Combined, the above items positively impacted earnings per share by USD 0.36 during the second quarter of fiscal 2020 and USD 0.30 during the first six months of fiscal 2020. 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.

Second Quarter Fiscal 2020 Income Statement Review

    Revenue increased 5 % (up 7 % in constant dollars) to USD 3.4 billion. Excluding the impact of acquisitions and divestitures and on an adjusted basis, revenue increased 6 % (up 8 % in constant dollars), driven by VF’s two largest brands, and our international and direct-to-consumer platforms.

    Gross margin increased 90 basis points to 52.9 %, primarily driven by favorable mix shift toward higher margin businesses and timing of net foreign currency transaction gains. On an adjusted basis, gross margin increased 90 basis points to 53.1 %.

    Operating income on a reported basis was USD 579 million. On an adjusted basis, operating income increased 7 % (up 10 % in constant dollars) to USD 606 million. Operating margin on a reported basis increased 20 basis points to 17.1 %. Adjusted operating margin increased 40 basis points to 17.9 %.

    Earnings per share was USD 1.61 on a reported basis. On an adjusted basis, earnings per share increased 6 % (up 8 % in constant dollars) to USD 1.26.

Balance Sheet Highlights

Inventories were up 10 % compared with the same period last year. During the quarter, VF also returned approximately USD 171 million of cash to shareholders through dividends. The company did not repurchase any shares during the second quarter and has USD 3.8 billion remaining under its current share repurchase authorization.

Adjusted Full Year Fiscal 2020 Outlook

VF’s outlook for full year fiscal 2020 is on an adjusted continuing operations basis unless otherwise noted, and has been updated to include the following:

    Revenue is still expected to approximate USD 11.8 billion, reflecting an increase of approximately 6 % (8 % on a constant dollar basis excluding the impact of acquisitions and divestitures). By segment, revenue for Outdoor is still expected to increase approximately 5 % (6 % to 7 % on a constant dollar basis, excluding the impact of acquisitions). This compares to the previous expectation of an increase in revenue of approximately 5 % (6 % on a constant dollar basis, excluding the impact of acquisitions). Revenue for Active is now expected to increase approximately 8 % to 9 % (11 % to 12 % on a constant dollar basis, excluding the impact of divestitures). This compares to the previous expectation of an increase in revenue of approximately 7 % to 8 % (10 % to 11 % on a constant dollar basis, excluding the impact of divestitures). Revenue for Work is now expected to increase approximately 2 % to 3 % (4 % to 5 % on a constant dollar basis, excluding the impact of divestitures). This compares to the previous expectation of an increase in revenue of approximately 3 % to 5 % (4 % to 6 % on a constant dollar basis, excluding the impact of divestitures).

    International revenue is now expected to increase approximately 4 % to 5 %, or approximately 8 % to 9 % on a constant dollar basis, excluding the impact of acquisitions and divestitures. This compares to the previous expectation of an increase in revenue of approximately 4 % to 6 % (7 % to 9 % on a constant dollar basis, excluding the impact of acquisitions and divestitures).

    Direct-to-consumer revenue is now expected to increase approximately 11 % to 12 % (12 % to 13 % on a constant dollar basis), including about 25 % growth in digital. This compares to the previous expectation of an increase in revenue of approximately 10 % to 12 % (11 % to 13 % on a constant dollar basis).

    Adjusted gross margin is still expected to be 54.1 %, which represents an estimated increase of 80 basis points.

    Adjusted operating margin is still expected to be 13.8 %, which represents an estimated increase of approximately 90 basis points.

    Adjusted earnings per share is still expected to be in the range of USD 3.32 to USD 3.37, reflecting growth of approximately 16 % to 18 % (19 % to 21 % on a constant dollar basis, excluding acquisitions and divestitures).

    Adjusted cash flow from operations is still expected to be at least USD 1.3 billion.

    Other full year assumptions include an effective tax rate of approximately 15 % to 15.5 % and capital expenditures of approximately USD 400 million.

Dividend declared

VF’s Board of Directors declared a quarterly dividend of USD 0.48 per share, reflecting a 12 % increase over the previous quarter’s dividend. This dividend will be payable on December 20, 2019, to shareholders of record on December 10, 2019.

Founded in 1899, VF Corporation is one of the world’s largest apparel, footwear and accessories companies connecting people to the lifestyles, activities and experiences they cherish most through a family of iconic outdoor, active and workwear brands including Vans®, The North Face®, Timberland® and Dickies®. Our purpose is to power movements of sustainable and active lifestyles for the betterment of people and our planet. We connect this purpose with a relentless drive to succeed to create value for all stakeholders and use our company as a force for good.

 For more information, please visit www.vfc.com