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V.F. Corp (VFC) Stock Gains on Q3 Earnings Beat, Rises Y/Y

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V.F. Corporation’s (VFC - Free Report) third-quarter 2017 results marked its second consecutive quarter of both top and bottom-line beat. Also, earnings and sales grew year over year. The splendid quarter encouraged management to raise its outlook for full-year 2017. In fact, V.F. Corp. also announced a dividend hike last week, which further underscores management’s confidence in its future prospects.

The superb quarter and outlook was well received by investors, as shares of this branded apparel retailer are up 4.2% in the pre-market trading session. Notably, this Zacks Rank #3 (Hold) stock has jumped 27.2% year to date, outperforming the industry’s rise of 3.6%.




 
Q3 Numbers


The company’s quarterly adjusted earnings from continuing operations came in at $1.23 a share, which jumped 6% year over year, alongside beating the Zacks Consensus Estimate of $1.12. On a currency neutral basis, earnings surged 10% year over year.

V.F. Corporation Price, Consensus and EPS Surprise
 

V.F. Corporation Price, Consensus and EPS Surprise | V.F. Corporation Quote

V.F. Corp. generated total revenues, including royalty income, of $3,508.8 million that increased about 5% year over year and surpassed the Zacks Consensus Estimate of $3,413 million.  Net sales of $3,481.2 million also advanced 6% from the prior-year quarter. On a currency neutral basis, revenues jumped 4%. Revenues in the quarter continued to gain from strength in international and direct-to-customer platforms, the Outdoor & Action Sports coalition and the company’s workwear business.

The company’s reported gross margin increased 100 basis points (bps) to 50.1%, thanks to better pricing and favorable mix shift toward high margin businesses, which was partly negated by foreign currency headwinds and higher product costs. Notably, foreign currency hurt gross margin by 80 bps.

Adjusted operating income slipped 2% to $593 million, while the adjusted operating margin contracted 140 bps to 16.9%. Currency headwinds affected operating margin by 80 bps.

Segment Details

Revenues at Outdoor & Action Sports grew 8% to $2,502.6 million (up 6% on a currency neutral basis).

Jeanswear revenues of $697.7 million dipped 1% year over year (down 1% on a currency neutral basis as well).

Imagewear revenues rose 9% (8% on a currency neutral basis) to roughly $138.9 million.

Revenues at Sportswear remained flat on both reported and currency neutral basis to $140.3 million.

Other revenues dropped 6% to $29.4 million, on both reported and currency neutral basis.

Financial Details

V.F. Corp. ended the quarter with cash and equivalents of $1,546.1 million, long-term debt of $2,144.2 million and shareholders’ equity of $3,937.4 million. In the first three quarters of 2017, the company generated $6.7 million cash from operating activities.

On Oct 19, 2017, the company raised its quarterly dividend by 10% to 46 cents per share, which is payable on Dec 18 to shareholders with record as on Dec 8.

Further, as of the quarter end, the company had shares worth $4.2 billion remaining under its standing authorization.

Divestitures

On Apr 28, V.F. Corp. divested its Licensed Sports Group (‘’LSG’’) business to Fanatics Inc., which included the sale of its Majestic brand. Also, management implemented its plan of discontinuing with its licensing unit, which led the company to bring assets of its JanSport brand under the “held for sale” category. In August 2016, the company completed the sale of its Contemporary Brands businesses, including the 7 For All Mankind, Splendid and Ella Moss brands.

All these businesses are classified as discontinued operations in the company’s financial statements.

Outlook

Management remains impressed with the company’s quarterly performance, which encouraged it to raise its outlook. For 2017, management now anticipates revenues to grow 6% to nearly $12.1 billion. Currency neutral revenues are expected to rise 5.5%. The Williamson-Dickie buyout is estimated to contribute nearly $200 million to revenues. Earlier, management projected 2017 revenues to grow 3.5% (or 4.5% on a currency neutral basis) to $11.85 billion.

Direct-to-consumer revenues are now anticipated to rise 13%, as compared with 10-11% growth forecasted earlier. The company expects digital revenues to surge about 30% now, higher than the previously expected growth of 25%.

V.F. Corp. now anticipates gross margin to be around 50%, up from 49.5% expected earlier. Adjusted operating margin is now expected at about 13.4%, compared with 13.7% guided earlier. Both the gross and operating margin including 50 bps negative impacts from currency headwinds and 20 bps adverse impact from the Williamson-Dickie’s buyout.

Finally, the company now envisions earnings per share to be $3.01, reflecting a 1% rise (6% on a currency neutral basis) from the year-ago period figure of $2.98. Earlier management expected EPS to be roughly $2.96.

The company now expects cash flow from operations of approximately $1.5 billion for 2017, as compared with the prior forecast of $1.45 billion. Effective tax rate is projected to be 20%.

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