Photo by Vans.
Announced today, October 21, VF Corp offered up interesting news with revenues increasing for their 3rd quarter by 7% to $2,232 million up from $2,093 million last year during the same time period. Leading the charge were VF’s brands The North Face and Vans rising 17% and 19%, respectively.
What’s also interesting to note in terms of action sports, outdoor sports, and youth culture are the new marketing plans for both brands, including a greater presence of The North Face sponsored athletes at the upcoming winter X Games in Aspen, CO, and the launch of OffTheWall.tv, a virtual TV network for Vans. Marketing budgets for both brands have increased over the past year.
VF’s contemporary brands such as 7 for All Mankind, John Varvatos which is rumored to want to leave the fold, and Ella Moss however rose only 1%. Part of this is due to the soft premium denim market in the U.S. which affected 7 for All Mankind especially.
Other plans to note for VF include the continued push into China. CEO Eric Wiseman states, “”Asia represents a billion dollar opportunity for VF, and we are investing accordingly. In China, our diversified portfolio provides consumers with a variety of compelling brands, including Lee(R), Wrangler(R), The North Face(R), Vans(R), Kipling(R) and 7 For All Mankind(R). We’re particularly excited about the unique opportunities that The North Face(R) and Vans(R) brands give us to build new categories – outdoor and action sports – in this dynamic market.”
For the full press release, read below.
VF Corporation (NYSE: VFC), a global leader in branded lifestyle apparel, today announced record results for the third quarter of 2010. All per share amounts are presented on a diluted basis.
Third quarter revenues rose 7% to $2,232.4 million from $2,093.8 million in the third quarter of 2009. On a constant currency basis, revenues increased 8%. Net income rose 11% to $242.8 million, while earnings per share increased 14% to $2.22. Foreign currency translation rates negatively impacted earnings per share by $.06 in the quarter.
For the first nine months of 2010, revenues increased 5% to $5,576.4 million from $5,304.9 million in the 2009 period. Net income rose 31% to $517.1 million, while earnings per share increased 32% to $4.68.
“This quarter’s strong organic revenue growth and record gross margins are a testament to VF’s diverse business model and powerful brands,” said Eric Wiseman, Chairman and Chief Executive Officer. “The investments we’re making this year to drive growth in our strongest and most profitable businesses are clearly paying off.”
Third Quarter Business Review
Outdoor & Action Sports: The momentum continues in our Outdoor & Action Sports businesses, which again achieved record revenues, operating income and operating margins in the current quarter. The strength of The North Face(R) and Vans(R) businesses was clearly evidenced by another quarter of double-digit growth for each, with global revenues of these brands rising by 17% and 19%, respectively. Total global revenues in our Outdoor & Action Sports businesses rose 14% in the third quarter with strong increases in both our Americas and international businesses. On a constant currency basis, total Outdoor & Action Sports revenues grew 17%. Revenue growth in Asia was particularly strong, rising 38% in the quarter. Our international Kipling(R) and Napapijri(R) businesses also achieved healthy revenue growth in constant dollars in the quarter, and lucy(R) brand revenues grew 20%. Total direct-to-consumer revenues for our Outdoor & Action Sports businesses rose 18% in the quarter, reflecting exceptional growth in The North Face(R), Vans(R) and lucy(R) brands.
Operating income rose by 21%, with operating margins increasing by more than one full percentage point to nearly 24% in the quarter. We continued to invest heavily behind focused marketing and other brand-building initiatives for both The North Face(R) and Vans(R) brands to support our expectations for continued strong global growth.
Jeanswear: Our Global Jeanswear business also achieved both top and bottom line growth in the quarter. Global Jeanswear revenues grew 1% in the quarter, or 2% on a constant currency basis. The exit of our European mass market business impacted the revenue comparisons by 2%. Domestic revenues rose 5% with growth in all three major businesses: Mass Market revenues grew 7% in the quarter, and revenues in our Lee and Western businesses rose 1% and 5%, respectively. International jeans revenues decreased 7%, with 2 percentage points of the decline due to foreign currency translation and the rest due primarily to the exit of our mass business in Europe. Jeanswear revenues in Asia increased 44%, with growth also achieved in Mexico, Latin America and Canada.
Operating income increased 6%, with operating margins rising by nearly one full percentage point to 17.6% in the quarter reflecting improved profitability in our international jeans businesses.
Imagewear: Our Imagewear business delivered excellent results in the quarter, with a 10% increase in revenues and a 68% increase in operating income. The Licensed Sports and Image Apparel businesses both generated solid growth for the second consecutive quarter. Growth in the Image business resulted from improved business conditions and increased market share with our key industrial customers. Image’s flame-resistant apparel business performed particularly well in the quarter. The Licensed Sports apparel business is also gaining market share, helped by our quick response retail replenishment capabilities during the Major League Baseball divisional playoff races and strong retail response to new women’s programs.
Sportswear: As anticipated, a shift in the timing of Nautica(R) shipments for special programs from the third quarter to the fourth resulted in a decline in Sportswear revenues of 13%. Sales of Nautica(R) men’s sportswear at our major wholesale partners are running up over 20% season to date versus last year. This trend, along with higher shipments resulting from the aforementioned shift in timing, should drive a mid-teen increase in Nautica(R) brand revenues in the fourth quarter. Kipling(R) brand revenues in the U.S. increased 42% in the quarter, reflecting the successful launch earlier this year of a new program that is exclusive with Macy’s.
The shift in third quarter revenues, combined with higher spending to support a new Nautica(R) marketing campaign, resulted in lower Sportswear operating income and margins in the quarter. Substantially better comparisons are anticipated in the fourth quarter.
Contemporary Brands: Revenues of our Contemporary Brands coalition, which consists of the 7 For All Mankind(R), John Varvatos(R), Splendid(R) and Ella Moss(R) brands, rose 1% in the quarter. On a constant currency basis, revenues increased 3%. 7 For All Mankind(R) brand global revenues declined slightly in the quarter, reflecting soft conditions in the U.S. premium denim market. In Europe, 7 For All Mankind(R) brand revenues expanded 8% on a constant currency basis. Our Splendid(R) and Ella Moss(R) brands had an excellent quarter, with a combined revenue increase of 16%. John Varvatos(R) brand revenues also grew in the quarter. Building our contemporary brands through direct-to-consumer initiatives, including both new stores and e-commerce, is an important component of our growth strategy for these businesses, and during the quarter direct-to-consumer revenues for our Contemporary Brands coalition grew 40%.
Operating income and margins declined in the quarter, due in part to continued investments in new 7 For All Mankind(R) retail stores and marketing programs to support future growth globally.
Marketing Investments Driving Organic Growth
Marketing spending increased 35% in the quarter as we continued to launch marketing and other programs to support our brands’ growth. Year-to-date, we spent an additional $50 million on these programs over prior year levels, and expect to spend an incremental $45 million in the fourth quarter. Over half of this total spending is behind The North Face(R) and Vans(R) brands. Heavy investments are also being made this year to support our rapidly-growing and highly profitable businesses in China. Examples of marketing investments underway include:
%u2022 Adding top freeride and slopestyle skiers, and halfpipe snowboarders to our athlete team to extend the reach of The North Face(R) as a snowsports brand during the upcoming winter X Games.
%u2022 Launching Offthewall.tv, a virtual Vans(R) TV network with original action sports, music and art-related content.
%u2022 Continuing Vans(R) media campaign encompassing outdoor advertising, PR, print, online and in-store to increase the brand’s awareness in all key European markets.
%u2022 Investing in print, digital and PR campaigns behind our brands in key cities in China.
%u2022 Using national television, print, and digital advertising featuring celebrity spokesman Mike Rowe to reinvigorate our Lee(R) men’s jeans business.
%u2022 More than doubling our marketing spending behind the 7 For All Mankind(R) brand, including the launch of a new print campaign and events celebrating the brand’s 10 year anniversary.
%u2022 Extending the Nautica(R) brand’s TV and radio advertising partnership with Macy’s into San Francisco and Chicago.
Gross Margins Reach Record Third Quarter Level
Continuing the trend of the last several quarters, gross margins were substantially above prior year levels. Third quarter gross margins reached a record level for the period, rising over 200 basis points to 46.5%. This substantial improvement was driven by three primary factors: 1) lower product costs; 2) continued expansion and improved gross margins in our retail stores; and 3) generally clean inventories across our businesses. Operating margins rose to 15.9% in the current quarter from 15.2% in last year’s period.
Expansion in International and Direct-to-Consumer Businesses
Our international and direct-to-consumer businesses remain important long-term drivers of both organic growth and margin expansion. During the quarter, international revenues increased 10% on a constant currency basis driven by strong growth in our Outdoor & Action Sports businesses. Our momentum in Asia continued in the quarter, with revenues rising 37% reflecting exceptional growth in our jeanswear business and in The North Face(R), Vans(R) and Kipling(R) brands.
“Asia represents a billion dollar opportunity for VF, and we are investing accordingly,” said Mr. Wiseman. “In China, our diversified portfolio provides consumers with a variety of compelling brands, including Lee(R), Wrangler(R), The North Face(R), Vans(R), Kipling(R) and 7 For All Mankind(R). We’re particularly excited about the unique opportunities that The North Face(R) and Vans(R) brands give us to build new categories – outdoor and action sports – in this dynamic market.”
Our direct-to-consumer revenues increased 10%, driven by new store openings and comp store growth in the quarter. The direct-to-consumer businesses of The North Face(R), Vans(R), 7 For All Mankind(R) and lucy(R)brands each achieved double-digit revenue gains in the period. We opened a total of 21 stores across our brands in the quarter and 62 stores year-to-date, bringing the number of owned retail stores to 779 at the end of the quarter. We remain on track to open approximately 85 stores this year.
Strong Balance Sheet
Cash and equivalents were $403 million at the end of the quarter. Reflecting strengthening revenue trends, inventories rose by 3% from prior year levels. We continue to expect a very strong year of cash flow generation, which is expected to approximate $850 million. Year-to-date we have spent $322 million to repurchase 4 million shares. During the quarter we paid down $200 million of long-term debt that carried an interest rate of 8.5%.
Outlook: Raising 2010 Guidance and Expecting Strong Results in 2011
We expect continued strong revenue growth in the fourth quarter. Gross margins should be comparable to the record level achieved in the 2009 period. We are continuing to invest in building our brands globally to fuel strong organic growth next year and beyond. As noted above, $45 million in incremental brand investment spending is planned in the fourth quarter.
For the full year, we now expect 2010 revenues to increase by more than 5% to approximately $7.6 billion, versus our prior guidance of an increase of 4 to 5%.
We are also raising our earnings per share guidance to a range of $6.25 to $6.30 per share, versus our previous guidance of $6.10 per share. The new guidance represents an increase of over 20% from 2009 earnings per share of $5.16 (before impairment charges). On a GAAP basis, earnings per share are now expected to increase over 50% from the $4.13 reported in 2009.
“We look forward to wrapping up a very strong 2010, with revenues near record levels and all-time highs in gross margins and earnings,” concluded Mr. Wiseman. “Looking ahead, we are confident that the investments made this year will drive another year of solid top and bottom line growth in 2011.”
Dividend Increased
The Board of Directors declared a quarterly cash dividend of $.63 per share, an increase of $.03 per share. The dividend is payable on December 20, 2010 to shareholders of record as of the close of business on December 10, 2010. This marks the 38th consecutive year of higher dividend payments to shareholders.
VF Corporation is a global leader in branded lifestyle apparel with more than 30 brands, including Wrangler(R), The North Face(R), Lee(R), Vans(R), Nautica(R), 7 For All Mankind(R), Eagle Creek(R), Eastpak(R), Ella Moss(R), JanSport(R), John Varvatos(R), Kipling(R), lucy(R), Majestic(R), Napapijri(R), Red Kap(R), Reef(R), Riders(R) and Splendid(R).
