VF Misses by a Whisker

VF Corp. (VFC - Snapshot Report), a leading manufacturer of branded lifestyle apparel, reported net income of $217.9 million on revenues of $2.09 billion in the third quarter, compared to $233.9 million on revenues of $2.21 billion in the year-earlier quarter. Earnings per share narrowly missed the Zacks Consensus Estimate by a penny at $1.94 compared to $2.10 in the year-ago period. The year-over-year decrease in the EPS was primarily due to higher pension expense and the adverse effect of foreign currency translation.
 
Segmentwise, revenues in the Outdoor and Action Sports division were relatively flat, while that of the Sportswear and Contemporary Brands division reported 4% and 3% quarterly increase respectively, on a year-over-year comparison. Although revenues were down in the Jeanswear segment, it improved sequentially from the previous quarter with strong performance in the domestic markets. In the Imagewear segment, revenues were down due to high levels of unemployment and reduced consumer discretionary spending.
 
The International and Direct-to-Customer segments were the key long-term drivers of organic growth and healthy margin. Although the overall International revenues declined 2% during the quarter, revenues were up by as much as 32% in Asia. The Direct-to-Customer segment reported a 6% increase in revenues year over year.   
 
Gross margins during the quarter were near record levels at 44.3%, while operating margins decreased marginally to 15.2% from 15.9% in the year-ago quarter. At quarter end, VF had a strong balance sheet with cash and cash equivalents of $379 million. Cash flow from operations was expected to reach $800 million by the end of the year, which was significantly higher than its previous expectations of $750 million. Inventories during the quarter reduced 13% year over year primarily due to prudent inventory management policies. 
 
With stringent cost-control measures, reduced inventories, and continued focus on high-return investments, VF has revised its earnings guidance upwards at the higher end of its previous outlook for 2009. The company now anticipates earnings in the range of $4.85 to $5 per share. In addition, VF has increased its quarterly dividend by 2% to 60 cents per share, which represents the 37th consecutive year of higher dividends paid to the shareholders.

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