Strong dollar dents promising quarter but VF stays upbeat as brands continue to appeal.
By Yasameen Noorian

Solid rather than spectacular would best sum up VF Corp’s start to the new fiscal year as the jeans-to-outdoor giant’s massive portfolio mostly returned …

May 05, 2015
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Solid rather than spectacular would best sum up VF Corp’s start to the new fiscal year as the jeans-to-outdoor giant’s massive portfolio mostly returned slender gains. Why so slender given that most of its categories and brands were growing? Cue the strong dollar that’s been wreaking havoc for a number of US firms.

Just while the weak euro has been buoying up European company results, the power of the US dollar has made things tough for their American peers and rivals and few firms are immune.

But there was positive news on the longer-term sales outlook for the owner of The North Face, Timberland, Nautica, Vans and Wrangler and CEO Eric Wiseman said the company is confident for the future. He expects full year EPS to rise 14%, up from 12% on a currency-neutral basis, and margins to improve.

First let’s look at those Q1 numbers: Earnings slipped to $289m/67 cents a share from $297m/67 cents a year ago, even though total revenue edged up 2% to $2.84bn, as analysts had expected. And the dollar impact? Well, currency-neutral sales were up a much more pleasing 8%.

The impact could really be seen outside of the company’s domestic market as total international revenues were disappointingly down 5%, but they were up a more-than-respectable 9% currency-neutral. Revenues in Europe dropped as much as 14% (don’t forget that weak euro vs the strong dollar) but they were up 4% currency-neutral.

The best news came from Asia-Pacific – where they rose 13% in real terms and 17% currency-neutral – and the Americas (excluding the US) where they rose 4%, or 16% currency-neutral.
Direct-to-consumer revenues, meanwhile, lifted 5%, or 11% currency-neutral, with positive comps growth in all regions and particular strength in Europe.

Sales at its usually vibrant outdoor and action sports segment only grew 2% to $1.6bn, but currency-neutral sales were up a healthy 10% for the unit.

So what were the standout performers this quarter? Well, almost everything really. If only that dollar wasn’t so strong.

Take the star Timberland brand, for instance. Its revenues may have been flat, but it rose 10% currency-neutral.
In the Americas, revenues were up at a high-teen percentage rate, driven by “significant wholesale growth”. As with the company as a whole, Asia-Pacific saw a good quarter while Europe was weak, rising only a few percent currency-neutral and dropping on a total basis.

A similar story was seen at North Face where revenue grew only 1%, but rose 7% currency-neutral. Again, the Americas and Asia-Pacific powered ahead while Europe proved slower.

Jeanswear – including the key Wrangler and Lee brands – rose only 1% too, but 6% currency-neutral and it was the same story regionally as across the company, with Europe proving the weakest region because of the currency effects.

“Our jeanswear business in the mass channel was unbelievably strong and that speaks volumes for the underlying strength of our jeans business,” Wiseman told WWD. “That business is predominantly men’s and it was driven primarily by new products and new in-store execution.”

Meanwhile, CFO Scott Roe also told analysts that “acquisitions remain the first priority”, without giving details, although the group has not made a significant buy since Timberland in 2011.

So that’s the story – a basket of brands that are all selling strongly but a currency that’s not proving to be much of a help. Expect more of the same as more US firms give us their quarterly figures.


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