V.F. Corporation (VFC) reported second-quarter 2011 adjusted earnings of $1.09 per share, striding ahead of the Zacks Consensus Estimate by 7 cents.
The result also surpassed earnings of $1.00 per share in the prior-year quarter.
Including costs of 2 cents related to the pending acquisition of The Timberland Company, a 7-cent gain from the closure of European Jeanswear facility and benefits from currency translation of 3 cents, earnings per share for the quarter came in at $1.17.
Operational Performance
V.F. Corp.'s revenue of $1,840.1 million in the second quarter exceeded the Zacks Consensus Estimate of $1,743.0 million. Revenues eclipsed the year-ago figure by 15.4%. Double-digit revenue growth at all V.F. Corp.'s coalitions led to the overall climb.
Costs and operating expenses on a year-over-year basis increased 15.9% in the second quarter. Gross margin in the second quarter declined 120 basis points to 45.9% from a previous high of 47.1% in the year-ago quarter, primarily due to higher product costs. A gain of 65 basis points from the closure of the European Jeanswear facility is included in the gross margin.
Operating income increased robustly by 11.3% year over year to reach $188.7 million in the quarter. However, operating margin in the quarter declined 30 basis points to 10.3%.
Segment Performance
Revenue at Outdoor & Action Sports increased 23% year over year to $717.9 million. Business from both the Americas and beyond contributed to the revenue increase. America's revenue grew by 14% while International revenue inched up 42%. Second-quarter operating income increased 10% from the year-ago quarter.
Jeanswear revenue increased 10% to $613.4 million. Operating income in the quarter increased 10% compared with the year-ago quarter.
Imagewear revenue increased 16% in the quarter to $244.1 million. Second-quarter operating income was 15.4% higher than the year-ago quarter.
Revenue at Sportswear improved 10% in the quarter to $120.3 million. Operating income was up 20% from last year.
Contemporary Brands experienced a revenue increase of 11% to $118.1 million. Operating income was 30% higher than the year-ago quarter.
During the quarter under review, international revenues increased 30.0% largely driven by strong growth in the Outdoor & Action Sports and Jeanswear businesses, along with strength across the biggest brands in Asia. India recorded a robust 50.0% increase in revenue, pushing total revenue growth of 30.0% in Asia.
Direct-to-consumer revenue increased 17% in the quarter, driven by new store openings, comparable store growth and a 40% jump in e-commerce revenue. The company opened 29 stores across diverse brands in the quarter, bringing the total number of owned retail stores to 808 at the end of second-quarter 2011.
Balance Sheet
V.F. Corp. ended second-quarter 2011 with cash and cash equivalents of $611.5 million. Long-term debt totaled $934.6 million, slightly lower than $935.9 million at the end of the prior-year quarter.
Dividend
The board of directors of V.F. Corp. declared a quarterly cash dividend of 63 cents per share. The dividend will be paid on September 19, 2011 to shareholders of record as of September 09, 2011.
Looking into 2011
V.F. Corp. has raised its revenue guidance for fiscal 2011. Bolstered by better-than-expected quarterly results, the company now expects total revenue to grow by approximately 12% to 13%. V.F. Corp. had earlier expected a revenue growth of 10%.
The company has also raised its earnings guidance to $7.50 per share from its earlier announcement of $7.25 per share. V.F. Corp. also expects to generate free cash flow of over $1.0 billion in fiscal 2011.
Our Take
We expect V.F. Corp. to continue delivering on its potential, given the proven performance across its segments, its focus to build brand image via incremental marketing spending and its committed returns to shareholders by virtue of share buybacks and dividend payouts.
Based in Greensboro, North Carolina, V.F. Corp. is one of the world's largest apparel companies. The company, together with its subsidiaries, engages in the design, manufacture, and marketing of branded apparel and related products in the United States and internationally. Major competitors of the company are Gap Inc. (GPS) and Sears Holdings Corporation (SHLD).
V.F. Corp. currently retains a Zacks #3 Rank, which translates to a short-term 'Hold' rating. However, we maintain a long-term 'Outperform' recommendation on the stock.
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