V.F. Corporation VFC posted first-quarter 2015 earnings of 67 cents a share that came in line with the Zacks Consensus Estimate and remained flat compared with the year-ago quarter. Total revenues of $2,837.3 million grew 2% year over year but fell short of the Zacks Consensus Estimate of $2,851.1 million.
On a currency neutral basis, earnings per share improved 13%, while revenues were up 8% year over year. The increase in revenues was attributable to strength witnessed across Outdoor & Action Sports, Jeanswear, Imagewear and Sportswear coalitions, and international and direct-to-consumer businesses.
The company’s gross margin contracted 40 basis points (bps) to 49% as foreign currency headwinds offset the benefit from the ongoing mix shift to higher-margin businesses. Operating income edged down 1% to $398 million, whereas operating margin shrunk 50 bps to 14%.
Segment Details
Revenues at Outdoor & Action Sports rose 2% to $1,606.9 million (up 10% on a currency neutral basis). The increased revenues are attributable to a respective 1% and 8% rise in sales in The North Face and Vans brands. Sales remained flat at Timberland brand. Segment operating income declined 5% to $261 million, while operating margin contracted 120 bps to 16.2%.
Jeanswear revenues of $699.7 million were up 1% year over year (up 6% on a currency neutral basis). During the quarter, the segment’s performance benefited from mid single-digit percentage growth in both the Americas and European regions, coupled with high single-digit growth in the Asia region. Global revenues fell 1% but jumped 4% on a currency neutral basis, for the Lee brand in the quarter. Revenues for the Wrangler brand increased 5% (up 9% on a currency neutral basis).
Segment operating income ascended 2% to $132 million, while operating margin increased 20 bps to 18.9% in the quarter.
Imagewear revenues increased 7% year over year to $282.9 million or up 8% on a currency neutral basis on the back of mid-teen percentage growth in the workwear business with sturdy demand for the Red Kap brand.
Operating income jumped 9% to $41 million, while operating margin improved 30 bps to 14.6%%.
Revenues at Sportswear rose 3% to $135.7 million and also increased at an equivalent rate on a currency neutral basis, owing to strong performance at the Kipling brand that delivered a 9% increase in the U.S. On the other hand, revenues of the Nautica brand increased at a low single-digit percentage rate. Segment operating income grew 2% to $13 million, whereas operating margin remained even at 9.5%.
Contemporary Brands’ revenues slipped 11% to $87.5 million or 7% on a currency neutral basis due to sluggish demand. Operating income slumped 55% to $3.5 million, while operating margin contracted 400 bps to 4%.
The company’s International revenues fell 5% year over year but jumped 9% on a currency neutral basis.
Revenues in Europe increased 4% on a currency neutral basis (fell 14% on a reported basis) and revenues in the Asia Pacific region climbed 17% on a currency neutral basis (up 13% on a reported basis). Revenues in the Americas (non-U.S.) region advanced 16% on a currency neutral basis (up 4% on a reported basis).
Direct-to-Consumer revenues jumped 5% or 11% on a currency neutral basis, primarily driven by comparable sales increase in all regions and strength in Europe. During the quarter, the company added 23 new stores taking the VF-owned retail outlets to 1,395. Overall, direct-to-consumer revenues contributed 24% to V.F. Corp.’s first-quarter revenues, higher than the 23% contribution in the year-ago quarter.
Financial Details
V.F. Corp. ended the quarter with cash and equivalents of $655.5 million, long-term debt of $1,422.8 million and shareholders’ equity of $4,904.3 million.
During the quarter, the company bought back 10 million shares for approximately $730 million. Management informed that that no further share repurchases are expected in 2015.
Along with its results, the company announced a quarterly dividend of 32 cents per share, payable on Jun 19, 2015 to stockholders of record as of Jun 9.
Outlook
Management now expects 2015 earnings per share to increase 14% on a currency neutral basis, up from 12% projected earlier. However, on a reported basis, management reiterated 4% growth in earnings per share.
V.F. Corp. reaffirmed gross margin expansion of 70 bps to 49.5% on a currency neutral basis (or 49.2% on a reported basis).
Zacks Rank
V.F. Corp. currently holds a Zacks Rank #4 (Sell). Better-ranked stocks in the retail sector include Columbia Sportswear Company COLM, G-III Apparel Group, Ltd. GIII and Hanesbrands Inc. HBI all sporting a Zacks Rank #2 (Buy).
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