V.F. Corporation (VFC Quick QuoteVFC - Free Report) released second-quarter 2016 results, wherein the company’s quarterly adjusted earnings came in at 36 cents a share, beating the Zacks Consensus Estimate by a couple of cents, and rising 5.9% year over year. Including one-time items, earnings declined 10% to 35 cents per share, mainly owing to foreign currency headwinds. On a currency neutral basis, the bottom line fell 6%.

Total revenue of $2,445.3 million improved 1% year over year, but missed the Zacks Consensus Estimate of $2,532.5 million. The year-over-year improvement in revenue was fuelled by strong sales at the company’s Outdoor & Action Sports, Jeanswear and Imagewear segments, along with impressive direct-to-consumer and international business performance.

The company’s gross margin improved marginally to 48.1%, as gains from better pricing, reduced product costs and favorable mix were somewhat countered by foreign currency headwinds and inventory management.

Operating income dropped 3% to $211 million, whereas operating margin shrunk by 40 basis points (bps) to 8.6%.

Recent Development

The company recently inked a deal to sell its Contemporary Brands business to Delta Galil Industries. While the sale is anticipated to conclude in the third quarter of 2016, V.F. Corp. will record operations of this business under the “discontinued operations” segment of its financial statements as assets and liabilities of this segment are currently classified as held for sale.

Segment Details

Revenues at Outdoor & Action Sports jumped 2% to $1,419.5 million (on a currency neutral basis as well). The upside was attributable to 2% and 6% respective growth in the North Face and Vans brands, partly offset by a 7% decline in Timberland revenue.

Jeanswear revenues of $629.2 million grew 3% year over year (up 6% on a currency neutral basis), backed by a 4% jump in Wrangler and 10% in the Lee brand.

Imagewear revenues increased 3% (on a currency neutral basis as well) to $255.3 million, with Licensed Sports Group operations increasing at the mid-teens rate, somewhat offset by a mid single-digit decline in the workwear business.

Revenues at Sportswear plunged 19% (on a currency neutral basis as well) to $114.8 million, owing to a sharp fall of 20% in Nautica, coupled with a mid-teen decline in the Kipling brand revenue.

The company’s International revenues rose 5% year over year and grew 7% on a currency neutral basis. On a reported basis, international revenues accounted for 35% of the company’s total revenue, compared with 34% in the year-ago period.

Revenues in Europe increased 3% on a currency neutral basis (up 5% on a reported basis) and revenues in the Asia-Pacific region improved 6% on a currency neutral basis (up 4% on a reported basis). Revenues in the Americas (non-U.S.) region advanced 20% on a currency neutral basis (up 7% on a reported basis).

Direct-to-Consumer revenues escalated 6% year over year (up 7% on a currency neutral basis). As of the end of the second quarter, V.F. Corp. owned 1,461 retail outlets, with the exclusion of Contemporary Brands. Overall, direct-to-consumer revenues contributed 27% to V.F. Corp.’s second-quarter revenues, compared to 26% in the same period last year.

Financial Details

V.F. Corp. ended the quarter with cash and equivalents of $676.3 million, long-term debt of $1,400.6 million, and shareholders’ equity of $4,648.4 million. During the first two quarters, the company generated nearly $11.8 million worth of cash flow from operating activities.

Further, the company repurchased 1.9 million shares worth $120 million during the second quarter. In line with its target of making buybacks worth $1 billion for full-year 2016, the company has repurchased 13.2 million shares for nearly $834 million so far in the year. V.F. Corp. has about 17 million shares remaining under its authorization.

Concurrent with its earnings release, V.F. Corp. announced a quarterly cash dividend of 37 cents per share, payable on Sep 19, 2016, to shareholders on record as of Sep 9.

Outlook

Following its second-quarter results and including the impact of the sale of Contemporary Brands on its 2016 results, the company trimmed its outlook. Management now expects 2016 revenues to grow 3%−4%, compared with a mid single-digit rate projected earlier.

V.F. Corp. anticipates gross margin expansion of 50 bps to 48.7%, including negative currency and Contemporary Brands sale impact of roughly 70 bps and 10 bps, respectively.

Further, the company envisions 2016 earnings per share from continuing operations to bear 3 cents adverse impact from the unit sale discussed above. Consequently, earnings are expected to increase 11% on a currency neutral basis and 5% on a reported basis, to $3.20 per share.

The company expects cash flow from operations of approximately $1.3 billion in 2016.  

Zacks Rank

V.F. Corp. currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Gildan Activewear Inc. (GIL Quick QuoteGIL - Free Report) , Hanesbrands Inc. (HBI Quick QuoteHBI - Free Report) and PVH Corp. (PVH Quick QuotePVH - Free Report) , each with a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

(We are reissuing this article to correct a mistake. The original article, issued earlier, should no longer be relied upon.)