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V.F. Corp (VFC) Q2 Earnings Miss Estimates, Sales Fall Y/Y
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V.F. Corporation (VFC - Free Report) reported soft second-quarter fiscal 2023 results, with the top and the bottom line missing the respective Zacks Consensus Estimate and declining from the corresponding year-ago fiscal quarter’s readings. Results were hurt by a tough operating environment, including the COVID-related disruption in China, macro-economic and geopolitical headwinds, and the near-term challenges at Vans.
Nonetheless, the resiliency of VFC’s brand portfolio and strength in the outdoor, active, streetwear and workwear units are tailwinds.
Q2 Highlights
V.F. Corp’s adjusted earnings per share of 73 cents declined 34% year over year and missed the Zacks Consensus Estimate by a penny. On a constant-currency (cc) basis, adjusted earnings per share were down 27%.
Net revenues of $3,080.6 million dipped 4% year over year and came below the Zacks Consensus Estimate of $3,103 million. At cc, revenues were up 2%. The top line gained from growth in the EMEA and APAC regions, partly offset by lower sales in the Americas region. Revenues of the company’s big four brands were down 5% (up 1% at cc), while the rest of the portfolio increased 4% (up 13% at cc).
VFC’s Outdoor emerging brands in aggregate rose 14% on solid growth at Ultra, registering a double-digit growth rate in road running and trail running. Ultra grew in mid-teens in the Americas and triple-digits in EMEA. Globally, both wholesale and direct-to-consumer businesses recorded low single-digit growth in the quarter. Four of VFC’s five largest markets posted sturdy double-digit growth.
Revenues in the Americas were down 3% year over year on a reported basis and 3% at cc. In the EMEA region, revenues dipped 4% (up 12% at cc). APAC revenues decreased 6% on a reported basis (up 2% at cc), whereas revenues in Greater China fell 15% (down 10% at cc). V.F. Corp’s international revenues slipped 5% year over year on a reported basis (up 8% at cc).
Channel-wise, wholesale revenues were down 4% (up 3% at cc) year over year. In the direct-to-consumer channel, revenues declined 4% (down 1% at cc). The digital channel witnessed a revenue decline of 7% and 1% on a reported and cc basis, respectively.
Gross margin decreased 230 basis points (bps) to 51.4%, mainly driven by increased costs and promotional activity, partly offset by price increases. On an adjusted basis, gross margin decreased 240 bps to 51.5%.
Adjusted operating income decreased 29.1% year over year to $378.7 million. The adjusted operating margin contracted 440 bps to 12.3% due to lower gross margin.
Segmental Details
Revenues in the Outdoor segment rose 3% to $1,555.3 million (up 10% at cc). The Active segment reported revenues of $1,260.1 million, down 9% (down 4% at cc) year over year. Revenues in the Work segment fell 11% year over year (down 9% at cc) to $265.2 million.
Financial Details
V.F. Corp ended the fiscal first quarter with cash and cash equivalents of $552.8 million, long-term debt of $3,526.1 million and shareholders’ equity of $3,085.6 million. Inventories were up 88% year over year, amounting to $2,749.9 million.
For the six months ended September 2022, VFC used an operating cash flow of $914 million from the continuing operations. V.F. Corp returned $194 million to its shareholders through dividend payouts in the fiscal second quarter and $388 million in the first half. VFC declared a quarterly cash dividend of 51 cents per share, reflecting a 2% rise from the prior quarter’s dividend. This will be payable Dec 20, 2022, to its shareholders of record as of Dec 12.
Other Updates
V.F. Corp continues to adjust its business operations per the government guidelines associated with COVID-19. Most of its supply chain is operational at present. Although its raw material suppliers across China are currently operational, it saw an eight-week lockdown in China during the first quarter of fiscal 2023. This led to logistics-related issues causing ongoing product delays. VFC is working with its suppliers to minimize disruptions. Its distribution centers are operating in accordance with the government guidelines to maintain safety and health protocols.
All stores in North America and EMEA regions remained open during the reported quarter. In the APAC region, including Mainland China, no stores were shut at the start of the quarter with a peak of 7% stores (including partner doors) closed and an average of 3% of stores shuttered throughout the reported quarter. At the end of the reported quarter, 4% of stores were shut and currently 7% of stores are closed.
Outlook
For fiscal 2023, VFC is reaffirming its constant dollar revenue growth of 5-6%. It expects 6.5 points of impact from foreign currency fluctuations on reported revenues. Management expects North Face to grow at least 12%. Vans for the fiscal year will be down mid-single digits.
With a more impactful promotional landscape, reflecting the increased levels of inventory across the marketplace and US dollar strengthening, VFC forecasts gross margins to decline 100-150 bps year over year compared with the prior view of a decline of 50 bps. Lower gross margin and higher foreign currency woes induce a fall of nearly 11% in the adjusted operating margin guidance, down from the earlier outlook of an approximate 12%.
V.F. Corp envisions earnings per share in the bracket of $2.40-$2.50 compared with $2.60-$2.70 projected earlier. Earnings per share of $3.18 were recorded last year. Management noted that VFC’s balance sheet remains sound with liquidity likely to exceed $2.3 billion by the year-end.
Going ahead, adjusted cash flow from operations is likely to be $0.9 billion for fiscal 2023. Capital expenditures are expected to be approximately $230 million.
Image Source: Zacks Investment Research
The presently Zacks Rank #4 (Sell) stock has lost 47.8% in the past six months compared with the industry’s decline of 21.3%.
Stocks to Consider
Here we highlighted three better-ranked stocks, namely Designer Brands (DBI - Free Report) , Delta Apparel and Caleres (CAL - Free Report) .
The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and earnings per share (EPS) suggests growth of 6.9% and 23.5%, respectively, from the corresponding year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 55.1%, on average.
Delta Apparel is a manufacturer of activewear and lifestyle apparel products. DLA has a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Delta Apparel’s current financial-year sales and EPS suggests growth of 12.6% and 27.4%, respectively, from the year-ago corresponding figures. DLA has a trailing four-quarter earnings surprise of 34.2%, on average.
Caleres, a footwear dealer, has a Zacks Rank of 2 at present. CAL has a trailing four-quarter earnings surprise of 34.9%, on average.
The Zacks Consensus Estimate for Caleres’ current financial-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago corresponding figures.
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V.F. Corp (VFC) Q2 Earnings Miss Estimates, Sales Fall Y/Y
V.F. Corporation (VFC - Free Report) reported soft second-quarter fiscal 2023 results, with the top and the bottom line missing the respective Zacks Consensus Estimate and declining from the corresponding year-ago fiscal quarter’s readings. Results were hurt by a tough operating environment, including the COVID-related disruption in China, macro-economic and geopolitical headwinds, and the near-term challenges at Vans.
Nonetheless, the resiliency of VFC’s brand portfolio and strength in the outdoor, active, streetwear and workwear units are tailwinds.
Q2 Highlights
V.F. Corp’s adjusted earnings per share of 73 cents declined 34% year over year and missed the Zacks Consensus Estimate by a penny. On a constant-currency (cc) basis, adjusted earnings per share were down 27%.
Net revenues of $3,080.6 million dipped 4% year over year and came below the Zacks Consensus Estimate of $3,103 million. At cc, revenues were up 2%. The top line gained from growth in the EMEA and APAC regions, partly offset by lower sales in the Americas region. Revenues of the company’s big four brands were down 5% (up 1% at cc), while the rest of the portfolio increased 4% (up 13% at cc).
VFC’s Outdoor emerging brands in aggregate rose 14% on solid growth at Ultra, registering a double-digit growth rate in road running and trail running. Ultra grew in mid-teens in the Americas and triple-digits in EMEA. Globally, both wholesale and direct-to-consumer businesses recorded low single-digit growth in the quarter. Four of VFC’s five largest markets posted sturdy double-digit growth.
Revenues in the Americas were down 3% year over year on a reported basis and 3% at cc. In the EMEA region, revenues dipped 4% (up 12% at cc). APAC revenues decreased 6% on a reported basis (up 2% at cc), whereas revenues in Greater China fell 15% (down 10% at cc). V.F. Corp’s international revenues slipped 5% year over year on a reported basis (up 8% at cc).
Channel-wise, wholesale revenues were down 4% (up 3% at cc) year over year. In the direct-to-consumer channel, revenues declined 4% (down 1% at cc). The digital channel witnessed a revenue decline of 7% and 1% on a reported and cc basis, respectively.
Gross margin decreased 230 basis points (bps) to 51.4%, mainly driven by increased costs and promotional activity, partly offset by price increases. On an adjusted basis, gross margin decreased 240 bps to 51.5%.
Adjusted operating income decreased 29.1% year over year to $378.7 million. The adjusted operating margin contracted 440 bps to 12.3% due to lower gross margin.
Segmental Details
Revenues in the Outdoor segment rose 3% to $1,555.3 million (up 10% at cc). The Active segment reported revenues of $1,260.1 million, down 9% (down 4% at cc) year over year. Revenues in the Work segment fell 11% year over year (down 9% at cc) to $265.2 million.
Financial Details
V.F. Corp ended the fiscal first quarter with cash and cash equivalents of $552.8 million, long-term debt of $3,526.1 million and shareholders’ equity of $3,085.6 million. Inventories were up 88% year over year, amounting to $2,749.9 million.
For the six months ended September 2022, VFC used an operating cash flow of $914 million from the continuing operations. V.F. Corp returned $194 million to its shareholders through dividend payouts in the fiscal second quarter and $388 million in the first half. VFC declared a quarterly cash dividend of 51 cents per share, reflecting a 2% rise from the prior quarter’s dividend. This will be payable Dec 20, 2022, to its shareholders of record as of Dec 12.
Other Updates
V.F. Corp continues to adjust its business operations per the government guidelines associated with COVID-19. Most of its supply chain is operational at present. Although its raw material suppliers across China are currently operational, it saw an eight-week lockdown in China during the first quarter of fiscal 2023. This led to logistics-related issues causing ongoing product delays. VFC is working with its suppliers to minimize disruptions. Its distribution centers are operating in accordance with the government guidelines to maintain safety and health protocols.
All stores in North America and EMEA regions remained open during the reported quarter. In the APAC region, including Mainland China, no stores were shut at the start of the quarter with a peak of 7% stores (including partner doors) closed and an average of 3% of stores shuttered throughout the reported quarter. At the end of the reported quarter, 4% of stores were shut and currently 7% of stores are closed.
Outlook
For fiscal 2023, VFC is reaffirming its constant dollar revenue growth of 5-6%. It expects 6.5 points of impact from foreign currency fluctuations on reported revenues. Management expects North Face to grow at least 12%. Vans for the fiscal year will be down mid-single digits.
With a more impactful promotional landscape, reflecting the increased levels of inventory across the marketplace and US dollar strengthening, VFC forecasts gross margins to decline 100-150 bps year over year compared with the prior view of a decline of 50 bps. Lower gross margin and higher foreign currency woes induce a fall of nearly 11% in the adjusted operating margin guidance, down from the earlier outlook of an approximate 12%.
V.F. Corp envisions earnings per share in the bracket of $2.40-$2.50 compared with $2.60-$2.70 projected earlier. Earnings per share of $3.18 were recorded last year. Management noted that VFC’s balance sheet remains sound with liquidity likely to exceed $2.3 billion by the year-end.
Going ahead, adjusted cash flow from operations is likely to be $0.9 billion for fiscal 2023. Capital expenditures are expected to be approximately $230 million.
Image Source: Zacks Investment Research
The presently Zacks Rank #4 (Sell) stock has lost 47.8% in the past six months compared with the industry’s decline of 21.3%.
Stocks to Consider
Here we highlighted three better-ranked stocks, namely Designer Brands (DBI - Free Report) , Delta Apparel and Caleres (CAL - Free Report) .
Designer Brands designs, manufactures, and retails footwear and accessories. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Designer Brands’ current financial-year revenues and earnings per share (EPS) suggests growth of 6.9% and 23.5%, respectively, from the corresponding year-ago reported figures. DBI has a trailing four-quarter earnings surprise of 55.1%, on average.
Delta Apparel is a manufacturer of activewear and lifestyle apparel products. DLA has a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Delta Apparel’s current financial-year sales and EPS suggests growth of 12.6% and 27.4%, respectively, from the year-ago corresponding figures. DLA has a trailing four-quarter earnings surprise of 34.2%, on average.
Caleres, a footwear dealer, has a Zacks Rank of 2 at present. CAL has a trailing four-quarter earnings surprise of 34.9%, on average.
The Zacks Consensus Estimate for Caleres’ current financial-year sales and EPS suggests growth of 5.6% and 0.9%, respectively, from the year-ago corresponding figures.