VF Q3 Sales, Profit Hit by Workwear Expenses, Timberland Rises

In What's New, Industry News by Jeff Prine

Timberland

Timberland

Greensboro, NC—VF Corp., owner of Timberland and denim brands, reported today that its third quarter sales and outlook were pared down due to a slowdown in oil exploration that is weighing on demand for its workwear.

For the three months ended Oct. 3, VF booked a profit of $459.9 million, or $1.07 a share, down from $470.5 million, or $1.08 a share, a year earlier.

Revenue rose 2.6% to $3.61 billion. Adjusted for currency fluctuations, sales were up 8%.

As a result the company missed analysts’ expectations for earnings of $1.12 a share on $3.68 billion in revenue.

Denim Down

VF’s outdoor segment, which includes brands such as North Face and Nautica, has driven results for VF lately as it struggles in other parts of its business. Timberland continued to make gains, however.

Outdoor & Action Sports was up 13% on a currency neutral basis (up 5% reported to $2.3 billion) driven by similar growth rates in both its wholesale and direct-to-consumer businesses.

Third quarter currency neutral revenue for The North Face rose 11% (up 6% reported), driven by balanced growth in its wholesale and direct-to-consumer businesses. By region, The North Face brand’s revenue was up at a low double-digit percentage rate in the Americas, up at a low single-digit rate (down low-double reported) in Europe and up at a high-teen percentage rate (up mid-teen reported) in Asia-Pacific.

Vans brand was up 10% including a high-teen percentage rate increase (up low-teen reported) in direct-to-consumer sales and mid-single-digit growth (down mid-single reported) in wholesale sales.

Timberland was up 21% on a currency neutral basis (up 11% reported) including more than 25% growth (up mid-teen reported) in its wholesale business and a low single-digit increase (down mid-single reported) in direct-to-consumer sales. In the Americas region, revenue was up more than 40% due to a combination of strong performance and lower third quarter revenue in 2014 due to phasing of orders. This growth should normalize to a full-year high-teen percentage rate increase, placing the Timberland’s Americas business in line with expectations.

In Europe, revenue was up at a high single-digit percentage rate (down high-single reported) and in the Asia-Pacific region, revenue in the third quarter was up at a low single-digit percentage rate (down low-single reported). There is no change in the company’s expectation that Timberland brand global revenue will increase at a low-teen percentage rate on a currency neutral basis in 2015.

Jeanswear sales were flat, or up 4% excluding currency swings, while contemporary brands sales fell 13% excluding currency impacts. Earlier this year, VF said it wrote down the value of the denim brand Seven for All Mankind along with two other contemporary lines by $396 million.

Sportswear sales fell 1% on a currency-neutral basis.

Looking ahead, VF now expects revenue to grow 7.5%, down from its July guidance for 8% growth.

VF said it now expects sales in the segment that includes the workwear business, which also supplies uniforms to chefs and police officers, to be flat, compared with its prior expectation for a mid single-digit percentage increase.

VF’s outdoor segment, which includes brands such as North Face and Nautica, has driven results for VF lately as it struggles in other parts of its business.

Gross margin was 48.9% on a currency neutral basis, representing a 60 basis point improvement over the same period last year. Reported gross margin was down 40 basis points to 47.9% as benefits from more favorable product costs and continued mix shift to higher margin businesses were offset by foreign currency headwinds in the quarter – especially movements in the euro, Chinese renminbi, British pound sterling, Canadian dollar and Mexican peso. Sportswear sales fell 1% on a currency-neutral basis.

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