VF Reports First Quarter Fiscal 2022 Results; Raises Full Year Fiscal 2022 Outlook

Posted on by vbodmer
  • Revenue from continuing operations increased 104 % (up 96 % in constant dollars) to USD 2.2 billion; excluding acquisitions, revenue increased 90 % (up 83 % in constant dollars);
  • Active segment revenue increased 128 % (up 120 % in constant dollars) including a 110 % (102 % in constant dollars) increase in Vans® brand revenue and a 26 %age point revenue growth contribution from acquisitions; Outdoor segment revenue increased 81 % (up 72 % in constant dollars) including a 93 % (83 % in constant dollars) increase in The North Face® brand revenue; Work segment revenue increased 69 % (up 66 % in constant dollars) including a 61 % (58 % in constant dollars) increase in Dickies® brand revenue;
  • International revenue increased 84 % (up 68 % in constant dollars) including a 10 %age point revenue growth contribution from acquisitions; Europe revenue increased 126 % (up 106 % in constant dollars); Greater China revenue increased 19 % (up 9 % in constant dollars), including a 23 % (12 % in constant dollars) increase in Mainland China;
  • Direct-to-Consumer revenue increased 97 % (up 90 % in constant dollars) including a 27 percentage point revenue growth contribution from acquisitions; Digital revenue increased 25 % (up 20 % in constant dollars) versus the prior year including a 29 percentage point revenue growth contribution from acquisitions; excluding acquisitions, Digital revenue increased 72 % versus the first quarter of fiscal 2020;
  • Gross margin from continuing operations increased 360 basis points to 56.5 %; on an adjusted basis, gross margin increased 260 basis points to 56.7 % including a 30 basis point positive impact from acquisitions;
  • Operating income from continuing operations on a reported basis was USD 203 million; on an adjusted basis, operating income from continuing operations increased 164 % (160 % in constant dollars) to USD 148 million including a USD 32 million contribution from acquisitions;
  • Earnings per share from continuing operations was USD 0.39; adjusted earnings per share from continuing operations increased 148 % (up 144 % in constant dollars) to USD 0.27 including a USD 0.07 per share contribution from acquisitions;
  • Full year fiscal 2022 revenue is now expected to be at least USD 12.0 billion, reflecting growth of at least 30 %, including an approximate USD 600 million contribution from the Supreme® brand; full year fiscal 2022 adjusted earnings per share is now expected to be at least USD 3.20, including an approximate USD 0.25 contribution from the Supreme® brand.

VF Corporation (NYSE: VFC) reported financial results for its first quarter ended July 3, 2021. 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 – Occupational Workwear 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 Transaction and Deal Related Activities and Costs Related to Specified Strategic Business Decisions.” Unless otherwise noted, “reported” and “adjusted” amounts are the same.

“Our teams delivered an outstanding first quarter, powering VF back to pre-pandemic revenue levels while driving an earnings recovery ahead of our expectations,” said Steve Rendle, VF’s Chairman, President and CEO. “We continue to see broad-based momentum across the portfolio, supporting an increase to our fiscal 2022 outlook for each of our largest brands. Though the first quarter is a relatively small portion of our total year, this strong start reinforces my confidence in our ability to accelerate growth through fiscal 2022 and beyond.”

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. 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 – Occupational Workwear Business

On June 28, 2021, VF completed the sale of its Occupational Workwear business. The Occupational Workwear business was comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also included a license for certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel. Accordingly, the company has reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods, through the date of sale.

Adjusted Amounts – Excluding Transaction and Deal Related Activities and Costs Related to Specified Strategic Business Decisions

The adjusted amounts in this release exclude transaction and deal related activities associated with the acquisition of the Supreme® brand. Total transaction and deal related activities include a decrease in the estimated fair value of the contingent consideration liability of USD 73 million and integration costs of approximately USD 4 million in the first quarter of fiscal 2022.

The adjusted amounts in this release exclude costs related to VF’s business model transformation, a transformation initiative for our Asia-Pacific regional operations and certain cost optimization activities and other charges indirectly related to the divestiture of the Occupational Workwear business. Total costs were approximately USD 14 million in the first quarter of fiscal 2022.

Combined, the above items positively impacted earnings per share by USD 0.12 during the first quarter of fiscal 2022. 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.

COVID-19 Outbreak Update

To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.

The majority of VF’s supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. The resurgence of COVID-19 lockdowns in key sourcing countries has resulted in additional manufacturing capacity constraints during the first quarter. Additionally, port delays, equipment availability and other logistics challenges have contributed to product delays. VF is working with its suppliers to minimize disruption and is employing expedited freight as needed. VF’s distribution centres are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.

In North America, less than 5 % of stores were closed at the beginning of the first quarter. All stores have since reopened and currently all stores are open.

In the EMEA region, approximately 60 % of stores were closed at the beginning of the first quarter. All stores have since reopened and currently all stores are open.

Nearly all of VF’s owned retail stores in the APAC region, including Mainland China, were open at the beginning of the first quarter. Additional stores have since re-closed and currently 5% of stores are closed.

VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritise the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.

First Quarter Fiscal 2022 Income Statement Review

  • Revenue increased 104 % (up 96 % in constant dollars) to USD 2.2 billion. Excluding the impact of acquisitions, revenue increased 90 % (up 83 % in constant dollars) driven by VF’s largest brands and the EMEA and North American regions, which experienced a significant negative impact from COVID-19 in the prior year period.
  • Gross margin increased 360 basis points to 56.5 %, primarily driven by reduced promotional activity. On an adjusted basis, gross margin increased 260 basis points, including a 30 basis point positive impact from acquisitions, to 56.7 %.
  • Operating income on a reported basis was USD 203 million. On an adjusted basis, operating income increased 164 % (160 % in constant dollars) to USD 148 million, including a USD 32 million contribution from acquisitions. Operating margin on a reported basis was 9.2 %. Adjusted operating margin increased 2820 basis points, including a 110 basis point positive impact from acquisitions, to 6.8 %.
  • Earnings per share was USD 0.39 on a reported basis. On an adjusted basis, earnings per share increased 148 % (up 144 % in constant dollars) to USD 0.27, including a USD 0.07 contribution from acquisitions.

Balance Sheet Highlights

Inventories were down 13 % compared with the same period last year. During the quarter, VF returned approximately USD 192 million of cash to shareholders through dividends. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program. VF has USD 2.8 billion remaining under its current share repurchase authorization.

Full Year Fiscal 2022 Outlook

VF’s full year outlook assumes no material deterioration to the company’s current business operations as a result of COVID-19, governmental actions and regulations. VF’s full year fiscal 2022 outlook has been updated and includes the following:

  • Revenue is now expected to be at least USD 12.0 billion, reflecting growth of at least 30 %, including an approximate USD 600 million contribution from the Supreme® brand. This compares to the previous expectation of approximately USD 11.8 billion, reflecting growth of approximately 28 %. By segment, revenue for Outdoor is now expected to increase between 24 % and 26 % versus the previous expectation of a 23 to 25 % increase; revenue for Active is now expected to increase between 37 % and 39 % versus the previous expectation of a 34 to 36 % increase; revenue for Work is now expected to increase between 16 and 18 % versus the previous expectation of a 10 to 12 % increase.
  • International revenue is expected to increase between 25 % and 27 %. By geographic region, in the EMEA region, revenue is expected to increase between 29 % and 31 %. In the Asia Pacific region, revenue is expected to increase between 18 % and 20 %. And, in the Americas (non-U.S.) region, revenue is expected to increase between 28 % and 30 %.
  • Direct-to-consumer revenue is now expected to increase between 39 % and 41 % versus the previous expectation of 38 % and 40 %, including Digital revenue growth of between 29 % and 31 %.
  • Adjusted gross margin is expected to exceed 56.0 %, which represents an estimated increase of more than 270 basis points.
  • Adjusted operating margin is now expected to increase more than 500 basis points to more than 13.0 %, versus the previous expectation of approximately 12.8 %.
  • Adjusted earnings per share is expected to be at least USD 3.20, including an approximate USD 0.25 contribution from the Supreme® brand. This compares to the previous expectation of approximately USD 3.05.
  • Adjusted cash flow from operations is expected to exceed USD 1.0 billion.
  • Other full year assumptions include an effective tax rate of approximately 15 % and capital expenditures of approximately USD 350 million.

Dividend Declared

VF’s Board of Directors declared a quarterly dividend of USD 0.49 per share, payable on September 20, 2021, to shareholders of record on September 10, 2021. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.

About VF

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