VF has 'powerful' Q3 on strength of Vans, The North Face
VF Corp., which runs Vans, The North Face, Timberland, Smartwool and other brands, on Friday reported that third quarter revenue rose 8% (10% in constant currency) to $3.9 billion, driven by its largest brands, international and direct-to-consumer platforms and its active, outdoor and work segments.
Direct-to-consumer sales rose 10% (12% in constant currency) including a one-percentage point contribution from acquisitions net of divestitures and e-commerce sales rose 24% (26% in constant currency), according to a company press release. International revenue rose 5% (9% in constant currency), with China revenue rising 18% (23% in constant currency).
Gross margin in the quarter expanded by 40 basis points to 51.9%, driven by a shift toward higher-margin businesses; adjusted gross margin expanded 60 bps to 52.2%. Operating income on a reported basis was $592 million; adjusted operating income rose 30% to $656 million, including $7 million from acquisitions net of divestitures. Operating margin on a reported basis expanded 170 bps to 15% as adjusted operating margin expanded 270 bps to 16.6%, the company said.
Vans and the North Face are doing VF a lot of favors, and executives on a conference call Friday morning expressed confidence in both brands.
While a more trend-driven brand, Vans continues to resonate, and the North Face saw wholesale revenue rise as the company has worked to place the strongest products with the right retailers, executives said.
The third quarter performance led the company to raise its full-year outlook. Revenue for the year is now expected to reach at least $13.8 billion, an increase of some 12% (13% in constant dollars), up from an 11% increase to $13.7 billion, and profits should rise 19% (or 20% in constant currency), according to the release. Direct-to-consumer revenue is now expected to rise 13% (14% in constant dollars), up from the previous forecast for a 12%-14% rise. The e-commerce forecast holds steady at a 30%-plus increase, the company said.
The results were "powerful," according to comments from Wedbush analysts Christopher Svezia and Paul Nawalany emailed to Retail Dive. "Global growth momentum is intact, as Vans … growth remained consistent (while accelerating on 2 year stack) and [The North Face] and Timberland reported strong gains as well," they noted, adding that sales dynamics in China and Europe, the Middle East and Africa "may also help allay market concerns."
VF has worked to adjust its portfolio to chase growth, most recently spinning off its Lee and Wrangler jeans business in August to a new entity it's still calling "Remainco" and in October selling its Reef beach footwearbrand. Previously the company acquired workwear label Williamson-Dickie, performance wear label Icebreaker and running shoe company Altra, divested the Nautica brand (bought by Authentic Brands) and the Licensed Sports Group, including the Majestic brand (bought by Fanatics). The revamp began even earlier, when the company in 2016 sold off its contemporary brands businesses — including 7 for All Mankind, Splendid and Ella Moss — to Israeli apparel company Delta Galil Industries for $120 million.
That appears to be paying off, and executives Thursday said that "M&A continues to be our number one choice for asset allocation." The results come amid fears that a slowdown in China's economy could hurt retailers that have established outposts there in search of growth, although there are signs that brands with in-demand goods will continue to fair well. "In all, VFC's results were robust and should calm fears of slowing growth," according to Wedbush.