VF Announces 47% Increase in Second Quarter Earnings Per Share and Raises Guidance
Information regarding VF's second quarter conference call webcast today at 8:30 a.m. ET can be found at the end of this release.
GREENSBORO, N.C.-- VF Corporation (NYSE: VFC), a global leader in branded lifestyle apparel, today announced results for the second quarter of 2010. All per share amounts are presented on a diluted basis.
Second quarter revenues rose 7% to $1,594.1 million from $1,485.6 million in the second quarter of 2009. Net income and earnings per share reached record levels in the quarter, with each increasing by 47%. Net income rose to $110.8 million or $1.00 per share, compared with $75.5 million or $.68 per share in the 2009 quarter.
For the first half of 2010, revenues increased 4% to $3,344.0 million from $3,211.1 million in the 2009 period. Net income rose 55% to $274.4 million from $176.5 million, while earnings per share also increased 55% to $2.47 from $1.59. Foreign currency translation rates benefitted earnings by $.06 per share in the first half of 2010.
"This was another outstanding quarter: revenues grew across all coalitions, gross margins reached record levels and earnings per share hit an all-time high," said Eric C. Wiseman, Chairman and Chief Executive Officer. "While current indicators point to a pause in the economic recovery, strong, highly profitable brands with compelling products that speak to consumers' needs can be successful regardless of the external environment. Our outstanding and diversified brand portfolio continues to perform exceptionally well and we look forward to a strong second half."
Second Quarter Business Review
Outdoor & Action Sports: Our Outdoor & Action Sports businesses achieved record revenues, operating income and operating margins in the second quarter. Global revenues rose 12% with strong increases in both our Americas and international businesses. Revenue growth in Asia was particularly strong, rising 28% in the quarter. Global revenues of The North Face(R) and Vans(R) brands grew 12% and 24%, respectively. Total direct-to-consumer revenues for our Outdoor & Action Sports businesses rose 13% in the quarter, with double-digit growth in The North Face(R), Vans(R) and lucy(R) brands.
Operating income rose by 35%, with operating margins increasing by more than two full percentage points to nearly 14% in the quarter, despite significant increases in marketing and other brand-building investments.
Jeanswear: Our global Jeanswear business resumed growth in the quarter, with revenues rising 2%. Domestic revenues rose 5% with growth in all three major businesses - Mass Market, Lee and Western Specialty. We were especially pleased with the 6% increase in our Mass Market business, driven by continued strength in our core Wrangler(R) and Riders(R) businesses. Revenues of our Lee(R) brand in the U.S. rose 2% in the quarter and revenues in our Western Specialty business increased 5%. International jeans revenues declined 5% due primarily to the exit of our mass business in Europe. Solid growth continued in other international markets including Mexico, South America and Canada.
Operating income increased 40%, with a significant increase in operating margins to 17% in the quarter.
Sportswear: Our Sportswear business also resumed growth in the quarter, with revenues rising 5%. Revenues of our Nautica(R) brand increased 4% with a double-digit increase in the brand's wholesale business with department stores. Kipling(R) brand revenues in the U.S. increased 17% in the quarter, reflecting the successful launch of a new, exclusive program with Macy's. The improvements in profitability achieved in the past several quarters continued in the second quarter, with operating income and operating margins improving substantially over those of the prior year's 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 18%, driven by double-digit growth across all brands.
Operating income rose 12%, with a slight decline in operating margins reflecting higher brand spending as well as investments in new 7 For All Mankind(R) retail stores.
Imagewear: As anticipated, our Imagewear business rebounded in the quarter, with revenues rising 8% driven by growth in both our Image and Licensed Sports Apparel businesses. Operating income rose 36% in the quarter with operating margins improving by 250 basis points to 12%.
Gross Margins Reach Record Level in Quarter
Second quarter gross margins reached record levels, rising 320 basis points to an all-time high of 47.1%. As in the first quarter, 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 10.6% from 8.1%, while marketing spending increased 19% as we continued to implement a focused program of investment spending behind our strongest and most profitable brands.
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 6% on a constant currency basis driven by strong growth in our Outdoor & Action Sports and Contemporary Brands businesses. Our momentum in Asia continued in the quarter, with revenues rising 26% reflecting double-digit growth in The North Face(R), Vans(R) and 7 For All Mankind(R) brands.
Our direct-to-consumer revenues increased 7%, driven by new store openings 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 25 stores across our brands in the quarter and 41 stores year-to-date, bringing the number of owned retail stores to 768 at the end of the quarter. We remain on track to open a total of 80 to 90 stores this year.
Strong Balance Sheet
Cash and equivalents were $540 million at the end of the quarter and inventories declined 10% from prior year levels. We continue to expect a very strong year of cash flow generation, which is now expected to approximate $850 million. Year-to-date we have spent $318 million to repurchase 4 million shares, which is one million shares higher than indicated in our previous guidance.
2010 Outlook: Expecting Record EPS
Based on strengthening trends across our businesses - and in particular in those areas where we have increased our marketing spending - we now expect revenues to increase 4 to 5% in 2010 compared with our prior guidance of an increase of 3 to 4%. The new guidance includes a negative 1% impact on revenues from foreign currency translation due to the decline in the value of the euro since our prior guidance in April. On a constant currency basis revenues are expected to rise 5 to 6%.
We are also raising our earnings per share guidance to $6.10 per share, versus our previous guidance of $5.90 per share. The new guidance, which includes a negative impact from foreign currency translation of $.04, represents an increase of 18% over 2009 earnings per share of $5.16 (before impairment charge). On a GAAP basis, earnings per share are now expected to increase 48% from the $4.13 reported in 2009.
The revised guidance reflects our expectation for an increase of approximately 5% in second half revenues versus 2009, compared with a 4% increase in first half revenues. Gross margins in the second half of 2010 should be above prior year levels. An increase in SG&A in the period will reflect the timing of higher investment spending in our brands. Of the total $85 million in planned spending this year, $65 million will occur in the second half of the year. Also included in our guidance for second half earnings is a negative impact of $.10 per share from foreign currency translation, with most occurring in the third quarter.
For the full year, we expect gross margins will reach record levels, slightly exceeding 46%. Operating margins should improve substantially as well, despite the incremental $85 million in brand investments.
Concluded Mr. Wiseman, "I can think of no better way to demonstrate our confidence in the strength of our brands than by continuing to invest behind their global growth potential. We look forward to reaping the benefits of these investments this year in the form of strong revenue growth, record gross margins and all-time high earnings."
The Board of Directors declared a quarterly cash dividend of $.60 per share, payable on September 20, 2010 to shareholders of record as of the close of business on September 10, 2010.
Non-GAAP Financial Measures
This press release contains constant currency financial information, which is a measure of financial performance that is not prepared in accordance with generally accepted accounting principles ("GAAP"). An explanation of management's use of this non-GAAP financial information is described in the supplemental financial information beginning on page 10.
Statement on Forward Looking Statements
Certain statements included in this release are "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting VF and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of VF to differ materially from those expressed or implied by forward-looking statements in this release include the overall level of consumer spending on apparel; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; VF's reliance on a small number of large customers; the financial strength of VF's customers; changing fashion trends and consumer demand; increasing pressure on margins; VF's ability to implement its growth strategy; VF's ability to grow its international and direct-to-consumer businesses; VF's ability to successfully integrate and grow acquisitions; VF's ability to maintain the strength and security of its information technology systems; stability of VF's manufacturing facilities and foreign suppliers; continued use by VF's suppliers of ethical business practices; VF's ability to accurately forecast demand for products; continuity of members of VF's management; VF's ability to protect trademarks and other intellectual property rights; maintenance by VF's licensees and distributors of the value of VF's brands; fluctuations in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect VF's financial results is included from time to time in VF's public reports filed with the Securities and Exchange Commission, including VF's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
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).
VF will hold its second quarter conference call and webcast today at 8:30 a.m. ET. Interested parties should call 1-877-741-4248 domestic, or 1-719-325-4765 international, to access the call. You may also access this call via the Internet at www.vfc.com. A replay will be available through July 29, 2010 and can be accessed by dialing 1-888-203-1112 domestic, and 1-719-457-0820 international. The pass code is 4176432. A replay also can be accessed at the Company's web site at www.vfc.com.
Three Months Ended June Six Months Ended June 2010 2009 2010 2009 Net Sales $ 1,576,947 $ 1,466,808 $ 3,307,033 $ 3,174,109 Royalty 17,157 18,829 36,950 37,002 Income Total 1,594,104 1,485,637 3,343,983 3,211,111 Revenues Costs and Operating Expenses Cost of goods sold 842,502 833,693 1,774,705 1,830,333 Marketing, administrative and 582,078 532,206 1,176,494 1,099,592 general expenses 1,424,580 1,365,899 2,951,199 2,929,925 Operating 169,524 119,738 392,784 281,186 Income Other Income (Expense) Interest income 496 565 990 1,330 Interest expense (20,494 ) (21,819 ) (40,993 ) (43,834 ) Miscellaneous, net 1,923 1,394 8,346 2,643 (18,075 ) (19,860 ) (31,657 ) (39,861 ) Income Before Income 151,449 99,878 361,127 241,325 Taxes Income 39,959 24,900 86,178 65,913 Taxes Net Income 111,490 74,978 274,949 175,412 Net (Income) Loss Attributable to Noncontrolling (655 ) 549 (598 ) 1,054 Interests in Subsidiaries Net Income Attributable to VF $ 110,835 $ 75,527 $ 274,351 $ 176,466 Corporation Earnings Per Share Attributable to VF Corporation Basic $ 1.02 $ 0.69 $ 2.50 $ 1.60 Diluted 1.00 0.68 2.47 1.59 Weighted Average Shares Outstanding Basic 108,957 110,243 109,608 110,116 Diluted 110,479 111,241 111,054 111,131 Cash Dividends Per $ 0.60 $ 0.59 $ 1.20 $ 1.18 Common Share Fiscal Periods:VF operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. Similarly, the fiscal second quarter ends on the Saturday closest to June 30. For presentation purposes herein, all references to periods ended June 2010, December 2009 and June 2009 relate to the fiscal periods ended as of July 3, 2010, January 2, 2010 and July 4, 2009, respectively.
VF CORPORATION Consolidated Balance Sheets (In thousands) June December June 2010 2009 2009 ASSETS Current Assets Cash and equivalents $ 540,191 $ 731,549 $ 385,202 Accounts receivable, net 735,022 776,140 881,014 Inventories 1,102,180 958,639 1,221,167 Other current assets 210,735 163,028 247,494 Total current assets 2,588,128 2,629,356 2,734,877 Property, Plant and Equipment 1,601,389 1,601,608 1,571,708 Less accumulated depreciation 1,007,924 987,430 941,339 593,465 614,178 630,369 Intangible Assets 1,496,682 1,535,121 1,563,742 Goodwill 1,335,526 1,367,680 1,456,807 Other Assets 307,641 324,322 333,452 $ 6,321,442 $ 6,470,657 $ 6,719,247 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 41,970 $ 45,453 $ 355,070 Current portion of long-term debt 202,742 203,179 3,213 Accounts payable 427,955 373,186 382,491 Accrued liabilities 447,449 470,765 429,044 Total current liabilities 1,120,116 1,092,583 1,169,818 Long-term Debt 937,150 938,494 1,139,790 Other Liabilities 624,938 626,295 765,809 Commitments and Contingencies Stockholders' Equity Common Stock 107,898 110,285 110,350 Additional paid-in capital 1,976,515 1,864,499 1,776,081 Accumulated other comprehensive (314,793 ) (209,742 ) (249,671 ) income (loss) Retained earnings 1,870,709 2,050,109 2,006,729 Noncontrolling interests in (1,091 ) (1,866 ) 341 subsidiaries Total stockholders' equity 3,639,238 3,813,285 3,643,830 $ 6,321,442 $ 6,470,657 $ 6,719,247
VF CORPORATION Consolidated Statements of Cash Flows (In thousands) Six Months Ended June 2010 2009 Operating Activities Net income $ 274,949 $ 175,412 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 52,485 52,268 Amortization of intangible assets 19,859 19,357 Other amortization 7,588 7,258 Stock-based compensation 31,353 19,839 Pension funding less than expense 24,190 41,407 Other, net 18,694 (3,383 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 3,271 (24,079 ) Inventories (161,541 ) (60,350 ) Other current assets (9,182 ) 19,053 Accounts payable 64,007 (56,410 ) Accrued compensation (14,125 ) (7,578 ) Accrued income taxes (42,120 ) (19,875 ) Accrued liabilities 49,063 (49,585 ) Other assets and liabilities (5,518 ) (28,663 ) Cash provided by operating activities 312,973 84,671 Investing Activities Capital expenditures (45,309 ) (36,543 ) Business acquisitions, net of cash acquired (38,446 ) (207,219 ) Software purchases (2,937 ) (6,709 ) Other, net (3,957 ) 3,998 Cash used by investing activities (90,649 ) (246,473 ) Financing Activities Increase (decrease) in short-term borrowings (2,551 ) 300,317 Payments on long-term debt (1,719 ) (1,838 ) Purchase of Common Stock (317,911 ) - Cash dividends paid (131,340 ) (130,017 ) Proceeds (cost) from issuance of Common Stock, net 71,017 (4,867 ) Tax benefits of stock option exercises 2,758 (2,021 ) Cash provided (used) by financing activities (379,746 ) 161,574 Effect of Foreign Currency Rate Changes on Cash (33,936 ) 3,586 Net Change in Cash and Equivalents (191,358 ) 3,358 Cash and Equivalents - Beginning of Year 731,549 381,844 Cash and Equivalents - End of Period $ 540,191 $ 385,202
VF CORPORATION Supplemental Financial Information Business Segment Information (In thousands) Three Months Ended June Six Months Ended June 2010 2009 2010 2009 Coalition Revenues Outdoor & Action $ 584,447 $ 523,547 $ 1,263,009 $ 1,141,819 Sports Jeanswear 556,016 545,421 1,178,081 1,212,804 Imagewear 211,225 195,306 432,523 421,957 Sportswear 109,074 104,315 211,251 207,885 Contemporary Brands 106,083 89,664 210,172 179,253 Other 27,259 27,384 48,947 47,393 Total coalition $ 1,594,104 $ 1,485,637 $ 3,343,983 $ 3,211,111 revenues Coalition Profit Outdoor & Action $ 81,522 $ 60,386 $ 214,227 $ 148,981 Sports Jeanswear 94,409 67,313 201,217 156,961 Imagewear 26,020 19,088 48,832 41,955 Sportswear 9,740 6,919 16,908 11,427 Contemporary Brands 8,472 7,563 16,924 22,977 Other (10 ) 1,387 (1,235 ) (629 ) Total coalition 220,153 162,656 496,873 381,672 profit Corporate and Other (48,706 ) (41,524 ) (95,743 ) (97,843 ) Expenses Interest, net (19,998 ) (21,254 ) (40,003 ) (42,504 ) Income Before Income $ 151,449 $ 99,878 $ 361,127 $ 241,325 Taxes
VF CORPORATION Supplemental Financial Information Business Segment Information - Constant Currency Basis (In thousands) Three Months Ended June 2010 Impact of Foreign As Currency Constant Reported Exchange Currency Coalition Revenues Outdoor & Action Sports $ 584,447 $ (9,457 ) $ 593,904 Jeanswear 556,016 752 555,264 Imagewear 211,225 1,447 209,778 Sportswear 109,074 - 109,074 Contemporary Brands 106,083 (1,646 ) 107,729 Other 27,259 - 27,259 Total coalition revenues $ 1,594,104 $ (8,904 ) $ 1,603,008 Coalition Profit Outdoor & Action Sports $ 81,522 $ (1,763 ) $ 83,285 Jeanswear 94,409 1,742 92,667 Imagewear 26,020 211 25,809 Sportswear 9,740 - 9,740 Contemporary Brands 8,472 (336 ) 8,808 Other (10 ) - (10 ) Total coalition profit 220,153 (146 ) 220,299 Corporate and Other Expenses (48,706 ) - (48,706 ) Interest, net (19,998 ) - (19,998 ) Income Before Income Taxes $ 151,449 $ (146 ) $ 151,595 Constant Currency Financial Information VF is a global company that reports financial information in U.S. dollars in accordance with generally accepted accounting principles. Foreign currency exchange rate fluctuations affect the amounts reported by VF from translating its foreign revenues and expenses into U.S. dollars. These rate fluctuations can have a significant effect on reported operating results. As a supplement to our reported operating results, we present constant currency financial information, which is a non-GAAP financial measure. We use constant currency information to provide a framework to assess how our businesses performed excluding the effects of changes in foreign currency translation rates. Management believes this information is useful to investors to facilitate comparisons of operating results and better identify trends in our businesses. To calculate coalition revenues and profits on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period). These constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with GAAP. The constant currency information presented may not be comparable to similarly titled measures reported by other companies.
VF CORPORATION Supplemental Financial Information Business Segment Information - Constant Currency Basis (In thousands) Six Months Ended June 2010 Impact of Foreign As Currency Constant Reported Exchange Currency Coalition Revenues Outdoor & Action Sports $ 1,263,009 $ 11,856 $ 1,251,153 Jeanswear 1,178,081 15,378 1,162,703 Imagewear 432,523 2,771 429,752 Sportswear 211,251 - 211,251 Contemporary Brands 210,172 (798 ) 210,970 Other 48,947 - 48,947 Total coalition revenues $ 3,343,983 $ 29,207 $ 3,314,776 Coalition Profit Outdoor & Action Sports $ 214,227 $ 3,492 $ 210,735 Jeanswear 201,217 4,362 196,855 Imagewear 48,832 553 48,279 Sportswear 16,908 - 16,908 Contemporary Brands 16,924 (350 ) 17,274 Other (1,235 ) - (1,235 ) Total coalition profit 496,873 8,057 488,816 Corporate and Other Expenses (95,743 ) - (95,743 ) Interest, net (40,003 ) - (40,003 ) Income Before Income Taxes $ 361,127 $ 8,057 $ 353,070
Source: VF Corporation