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V.F. Corp (VFC) Dips on Soft Q3 Earnings & Sales, Raises View

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V.F. Corporation (VFC - Free Report) has reported better-than-expected earnings in third-quarter fiscal 2021, while the top line missed the Zacks Consensus Estimate. The company’s fiscal third-quarter results continued to reflect significant impacts of the coronavirus pandemic, resulting in sales and earnings declines on a year-over-year basis.

It continued to witness mixed impacts of the COVID-led closures and restrictions. In North America, it had more than 95% of company-owned stores reopened by the start of the fiscal third quarter. However, nearly 15% stores re-closed by the end of the fiscal third quarter. Of these, the majority were Vans stores in California. Meanwhile, other stores operated with reduced capacity. Store re-openings began after the fiscal third quarter, with less than 10% of stores currently closed in North America.

In EMEA, nearly 50% of stores re-closed by the end of the fiscal third quarter. Currently, more than 60% of stores are closed in the EMEA region. However, in APAC, including Mainland China, all stores are open.

Shares of the company dipped 3.6% during pre-market trading, following the fiscal third-quarter results. The Zacks Rank #2 (Buy) company has gained 24.5% in the past three months compared with the industry’s growth of 17.2%.

 


 

Nonetheless, it raised its outlook for fiscal 2021 based on encouraging business trends. Moreover, it is particularly gaining from strong business performance in digital and across China.

Q3 Highlights

V.F. Corp’s adjusted earnings per share of 93 cents declined 19.1% from adjusted earnings of $1.15 in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate of 92 cents.

Net revenues of $2,971.5 million declined 6% year over year and missed the Zacks Consensus Estimate of $3,002 million. Constant-dollar revenues declined 8%. Revenues were mainly affected by store closures and lower consumer demand due to COVID-19 and related restrictions.

Moreover, the company’s International revenues were flat on a reported basis (down 4% in constant dollars). Revenues in Europe rose 1% (down 4% in constant dollars) and that in Greater China improved 18% (up 11% in constant dollars). Revenues for Mainland China witnessed 22% growth (up 15% in constant dollars).

Revenues at the company’s direct-to-consumer business dropped 2% (down 4% in constant dollars) in the fiscal third quarter, while digital revenues advanced 53% (up 49% in constant dollars).

Adjusted gross margin contracted 150 basis points (bps) year over year to 55.7%, owing to increased promotional activity to clear excess inventory and the timing of foreign-currency transactions. Adjusted operating income was $458.1 million, down 17.6% from adjusted operating income of $556.2 million in the year-ago quarter. Meanwhile, the adjusted operating margin of 15.4% contracted 220 bps from 17.6% in the prior-year quarter.

Segmental Details

Revenues at the Active segment declined 9% to $1,127.1 million (down 11% in constant-currency basis). This included a 6% decline (an 8% decline in constant dollars) for the Vans brand.

The Outdoor segment reported revenues of $1,571 million, down 5% year over year (a 7% decline in constant currency). This included flat revenues (down 2% in constant currency) for the North Face brand.

Revenues at the Work segment improved 8% year over year (up 6% in constant currency) to $270.2 million. This included 9% growth (up 7% in constant currency) for the Dickies brand.

Other revenues were $3.2 million compared with $6.1 million reported in the year-ago quarter.

Financial Details

V.F. Corp ended third-quarter fiscal 2021 with cash and cash equivalents of $3,254.2 million, long-term debt of $5,786.6 million, and shareholders’ equity of $3,138.2 million. Inventories were down 14% at the end of the fiscal third quarter.

In the reported quarter, the company returned $191 million to shareholders through dividend payouts. As part of its liquidity-preservation actions amid the coronavirus outbreak, it previously suspended its share-repurchase program on a temporary basis. Currently, it has $2.8 billion remaining under its current share-repurchase authorization.

Outlook

Management noted that it is on track to return to growth in fourth-quarter fiscal 2021, with plans to accelerate growth in fiscal 2022. The company remains on track with its business transformation plans. Moreover, it stated that the fiscal third-quarter results were ahead of its expectations. Backed by these, the company raised its outlook for fiscal 2021.

For fiscal 2021, it predicts revenues of $9.1-$9.2 billion, suggesting a decline of 12-13% on an adjusted basis. The revised outlook includes $125 million of revenue contribution from the Supreme brand. Earlier, the company anticipated revenues of $9 billion, suggesting a decline of 14% on an adjusted basis.

It now anticipates adjusted earnings per share of $1.30, suggesting a 51% year-over-year decline. The revised view accounts for nearly 5 cents earnings contribution from the Supreme brand. Earlier, the company predicted earnings per share of $1.20, with a 55% year-over-year decline and a 56% decrease in constant currency. The company now expects to generate adjusted free cash flow of $650 million in fiscal 2021 versus the previously mentioned $600 million.

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