Inside the outdoor industry

VF Q3 results see optimism for outdoor business

Revenues up eight per cent

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VF Corporation has reported financial results for its third quarter ended 29th December, 2018, with forecasts for the outdoor sector now revised upwards.

“VF’s third quarter results were fuelled by strong growth in our largest brands and balanced growth across the core dimensions of our portfolio,” said Steve Rendle, Chairman, President and Chief Executive Officer. “Based on the strength of our third quarter performance and the growth trajectory we see for the remainder of fiscal 2019, we are again increasing our full year outlook, including an additional $45 million of growth-focused investments aimed at accelerating growth and value creation into fiscal year 2020. We remain sharply focused on executing our integrated growth strategy and transforming VF into a purpose-led, performance-driven enterprise committed to delivering superior returns to shareholders.”

Highlights

  • Revenue increased eight percent (up 10 per cent in constant dollars) to $3.9 billion. Excluding acquisitions net of divestitures, revenue increased 7 per cent (up nine per cent in constant dollars), driven by VF’s largest brands, international and direct-to-consumer platforms, as well as strength from the Active, Outdoor and Work segments.
  • Gross margin increased 40 basis points to 51.9 per cent, driven by a mix-shift toward higher margin businesses. On an adjusted basis, gross margin increased 60 basis points to 52.2 per cent.
  • Operating income on a reported basis was $592 million. On an adjusted basis, operating income increased 30 per cent to $656 million, including a $7 million contribution from acquisitions net of divestitures. Operating margin on a reported basis increased 170 basis points to 15.0 percent. Adjusted operating margin increased 270 basis points to 16.6 per cent. Adjusted operating margin, excluding acquisitions net of divestitures, increased 280 basis points to 16.8 per cent.
  • Earnings per share was $1.16 on a reported basis. On an adjusted basis, earnings per share increased 30 per cent (up 31 per cent in constant dollars) to $1.31, including a 1-percentage point growth contribution from acquisitions net of divestitures.

Inventories were up nine per cent compared with the same period last year. Excluding the impact of acquisitions net of divestitures, inventories increased seven per cent. The company also returned approximately $700 million to shareholders through dividends and share repurchases. The company has $3.8 billion remaining under its current share repurchase authorisation.

The following outlook for fiscal year 2019 is on an adjusted basis and has been updated to include the following:

  • Revenue is now expected to be at least $13.8 billion, reflecting an increase of approximately 12 per cent (up 13 per cent in constant dollars). This compares to the previous expectation of at least $13.7 billion, which reflected an 11 per cent increase. By segment, revenue for Outdoor is now expected to increase eight per cent versus the previous expectation of a seven percent to eight per cent increase; revenue for Active is now expected to increase 16 per cent versus the previous expectation of a 14 per cent to 15 per cent increase; revenue for Work is now expected to increase 39 per cent versus the previous expectation of a more than 35 per cent increase; and, revenue for Jeans is now expected to decline three per cent versus the previous expectation of a one per cent to two per cent decline.
  • International revenue is now expected to increase 10 per cent to 11 percent (up about 13 per cent in constant dollars) versus the previous expectation of a 12 per cent to 13 per cent increase.
  • Direct-to-consumer revenue is now expected to increase 13 per cent (up 14 per cent in constant dollars) versus the previous expectation of a 12 per cent to 14 per cent increase. Digital revenue is still expected to increase more than 30 per cent.
  • Adjusted gross margin is expected to be at least 51 per cent.
  • Adjusted operating margin is expected to increase 90 basis points to 13.6 per cent.
  • Adjusted earnings per share is now expected to be $3.73, including an additional $45 million, or $0.09 per share, of incremental investment, reflecting an increase of 19 per cent (up 20 per cent in constant dollars). This compares to the previous expectation of $3.65.
  • Cash flow from operations is still expected to approximate $1.8 billion.
  • Other full year assumptions include an effective tax rate of about 16 percent and capital expenditures of approximately $275 million.

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