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V.F. Corporation (VFC - Free Report) reported impressive third-quarter fiscal 2023 results, with the top and bottom lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year. Results were hurt by a tough operating environment and continued supply-chain headwinds.
Q3 Highlights
V.F. Corp’s adjusted earnings per share of $1.12 declined 17% year over year but beat the Zacks Consensus Estimate of 99 cents. On a constant-currency (cc) basis, adjusted earnings per share were down 10%.
Net revenues of $3,531 million dipped 3% year over year but surpassed the Zacks Consensus Estimate of $3,495 million. At cc, revenues were up 3%. The top line reflected weakness in the EMEA and APAC regions, partly offset by solid performance in the outdoor brands, particularly The North Face. Revenues of the company’s big four brands were down 3% (up 2% at cc), while the rest of the portfolio decreased 2% (up 5% at cc).
Revenues in the Americas were down 2% year over year on a reported basis and 1% at cc. In the EMEA region, revenues dipped 2% (up 10% at cc). APAC revenues decreased 7% on a reported basis (up 4% at cc), whereas revenues in Greater China fell 11% (down 1% at cc). V.F. Corp’s international revenues slipped 3% year over year on a reported basis (up 8% at cc).
Channel-wise, wholesale revenues were down 3% (up 2% at cc) year over year. In the direct-to-consumer channel, revenues declined 2% (up 3% at cc). The digital channel’s revenues remained flat year over year but grew 6% on a cc basis.
The gross margin decreased 120 basis points (bps) to 54.9%. On an adjusted basis, the gross margin decreased 140 bps to 54.9% due to higher promotions.
Adjusted operating income decreased 46.4% year over year to $526.6 million. The adjusted operating margin contracted 280 bps to 14.9% due to a lower gross margin.
V.F. Corporation Price, Consensus and EPS Surprise
Revenues in the Outdoor segment rose 4% to $2,003 million (up 10% at cc) and came ahead of our estimate of $1,306.8 million. The Active segment reported revenues of $1,258.7 million, down 11% (down 6% at cc) year over year but came ahead of our estimate of $1,182.6. Revenues in the Work segment fell 6% year over year (down 3% at cc) to $268.9 million but came ahead of our estimate of $278.4 million.
Financial Details
V.F. Corp ended the fiscal third quarter with cash and cash equivalents of $571.3 million, long-term debt of $4,617.4 million and shareholders’ equity of $3,319.6 million. Inventories were up 83% year over year, amounting to $2,591.9 million.
For the nine months ended December 2022, VFC used an operating cash flow of $833.5 million from continuing operations. V.F. Corp returned $198 million to its shareholders through dividend payouts in the fiscal third quarter. VFC declared a quarterly cash dividend of 30 cents per share, reflecting a 41% plunge from the prior quarter’s dividend. This will be payable on Mar 21, 2023, to its shareholders of record as of Mar 10.
The move comes after management revealed plans to right-size dividend payout to strengthen financial flexibility and return to its target leverage ratio. The company is also on track with a strategic review of its Global Packs business, consisting of the Kipling, Eastpak and JanSport brands, as well as the divestiture and leaseback of its Europe headquarters in Stabio, Switzerland. VFC is focused on lowering working capital and optimizing inventories. Also, it has been accelerating its cost-saving efforts, which are likely to generate $225 million annually after the completion of its previously announced actions in fiscal 2024.
Other Updates
V.F. Corp continues to adjust its business operations per the government guidelines associated with COVID-19. It has updated its business practices in a few locations, wherein offices and stores have been temporarily closed, and travel bans and health and safety measures, including social distancing and quarantines, have been implemented. Most of its supply chain is operational at present. Although manufacturing and freight lead times remain elevated, VFC is working with its suppliers to minimize disruptions. Its distribution centers have been operating in accordance with government guidelines to maintain safety and health protocols.
All stores in North America and EMEA regions remained open in the reported quarter. In the APAC region, including Mainland China, 4% of stores were shut at the start of the quarter, with a peak of 27% of stores (including partner doors) closed and an average of 11% of stores shuttered throughout the reported quarter. At the end of the reported quarter, 3% of stores were shut and, currently, no stores are closed. Meanwhile, in EMEA, no stores were closed in the third quarter.
Outlook
For fiscal 2023, the Zacks Rank #3 (Hold) company expects constant dollar revenue growth of 3%, down from the earlier mentioned 5-6%. Management expects North Face to grow at least 14%, up from the previously communicated 12%. Vans for the fiscal year will now be down in the high-single digits compared with the prior mentioned mid-single digits.
VFC forecasts gross margins to decline 200 bps year over year compared with the prior mentioned decline of 100-150 bps. The adjusted operating margin is envisioned to be 9.5%, down from the earlier mentioned 11%. V.F. Corp envisions adjusted earnings per share of $2.05-$2.15 compared with $2.40-$2.50 stated earlier.
Adjusted cash flow from operations is likely to be $0.7 billion for fiscal 2023, down from the prior stated $0.9 billion. Capital expenditure is expected to be $200 million compared with the earlier stated $230 million. Inventory is likely to lower by $300 million.
For fiscal 2024, revenues are anticipated to grow in the low-single-digit range on a constant-currency basis. Gross and operating margins are likely to expand, respectively. Operating income is expected to grow in the double-digits, whereas the operating cash flow is likely to grow faster than earnings.
Image Source: Zacks Investment Research
Notably, the VFC stock has lost 0.1% in the past three months against the industry’s growth of 10.6%.
PVH Corp currently carries a Zacks Rank #2 (Buy). PVH has a trailing four-quarter earnings surprise of 22.9%, on average. PVH has a long-term earnings growth rate of 10.2%.
The Zacks Consensus Estimate for PVH Corp’s current financial-year sales and EPS indicates declines of 3.1% and 18.6%, respectively, from the year-ago period’s reported levels.
Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.9%, on average.
The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and earnings suggests growth of 23.1% and 34.2% from the year-ago period’s reported numbers, respectively.
Ralph Lauren, a footwear and accessories dealer, has a Zacks Rank of 2 at present. RL has a trailing four-quarter earnings surprise of 28.7%, on average.
The Zacks Consensus Estimate for Ralph Lauren’s next financial-year sales and EPS suggests growth of 5% and 13.4%, respectively, from the year-ago reported figures.
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V.F. Corp (VFC) Q3 Earnings & Sales Beat Estimates, Dip Y/Y
V.F. Corporation (VFC - Free Report) reported impressive third-quarter fiscal 2023 results, with the top and bottom lines surpassing the Zacks Consensus Estimate. However, both metrics declined year over year. Results were hurt by a tough operating environment and continued supply-chain headwinds.
Q3 Highlights
V.F. Corp’s adjusted earnings per share of $1.12 declined 17% year over year but beat the Zacks Consensus Estimate of 99 cents. On a constant-currency (cc) basis, adjusted earnings per share were down 10%.
Net revenues of $3,531 million dipped 3% year over year but surpassed the Zacks Consensus Estimate of $3,495 million. At cc, revenues were up 3%. The top line reflected weakness in the EMEA and APAC regions, partly offset by solid performance in the outdoor brands, particularly The North Face. Revenues of the company’s big four brands were down 3% (up 2% at cc), while the rest of the portfolio decreased 2% (up 5% at cc).
Revenues in the Americas were down 2% year over year on a reported basis and 1% at cc. In the EMEA region, revenues dipped 2% (up 10% at cc). APAC revenues decreased 7% on a reported basis (up 4% at cc), whereas revenues in Greater China fell 11% (down 1% at cc). V.F. Corp’s international revenues slipped 3% year over year on a reported basis (up 8% at cc).
Channel-wise, wholesale revenues were down 3% (up 2% at cc) year over year. In the direct-to-consumer channel, revenues declined 2% (up 3% at cc). The digital channel’s revenues remained flat year over year but grew 6% on a cc basis.
The gross margin decreased 120 basis points (bps) to 54.9%. On an adjusted basis, the gross margin decreased 140 bps to 54.9% due to higher promotions.
Adjusted operating income decreased 46.4% year over year to $526.6 million. The adjusted operating margin contracted 280 bps to 14.9% due to a lower gross margin.
V.F. Corporation Price, Consensus and EPS Surprise
V.F. Corporation price-consensus-eps-surprise-chart | V.F. Corporation Quote
Segmental Details
Revenues in the Outdoor segment rose 4% to $2,003 million (up 10% at cc) and came ahead of our estimate of $1,306.8 million. The Active segment reported revenues of $1,258.7 million, down 11% (down 6% at cc) year over year but came ahead of our estimate of $1,182.6. Revenues in the Work segment fell 6% year over year (down 3% at cc) to $268.9 million but came ahead of our estimate of $278.4 million.
Financial Details
V.F. Corp ended the fiscal third quarter with cash and cash equivalents of $571.3 million, long-term debt of $4,617.4 million and shareholders’ equity of $3,319.6 million. Inventories were up 83% year over year, amounting to $2,591.9 million.
For the nine months ended December 2022, VFC used an operating cash flow of $833.5 million from continuing operations. V.F. Corp returned $198 million to its shareholders through dividend payouts in the fiscal third quarter. VFC declared a quarterly cash dividend of 30 cents per share, reflecting a 41% plunge from the prior quarter’s dividend. This will be payable on Mar 21, 2023, to its shareholders of record as of Mar 10.
The move comes after management revealed plans to right-size dividend payout to strengthen financial flexibility and return to its target leverage ratio. The company is also on track with a strategic review of its Global Packs business, consisting of the Kipling, Eastpak and JanSport brands, as well as the divestiture and leaseback of its Europe headquarters in Stabio, Switzerland. VFC is focused on lowering working capital and optimizing inventories. Also, it has been accelerating its cost-saving efforts, which are likely to generate $225 million annually after the completion of its previously announced actions in fiscal 2024.
Other Updates
V.F. Corp continues to adjust its business operations per the government guidelines associated with COVID-19. It has updated its business practices in a few locations, wherein offices and stores have been temporarily closed, and travel bans and health and safety measures, including social distancing and quarantines, have been implemented. Most of its supply chain is operational at present. Although manufacturing and freight lead times remain elevated, VFC is working with its suppliers to minimize disruptions. Its distribution centers have been operating in accordance with government guidelines to maintain safety and health protocols.
All stores in North America and EMEA regions remained open in the reported quarter. In the APAC region, including Mainland China, 4% of stores were shut at the start of the quarter, with a peak of 27% of stores (including partner doors) closed and an average of 11% of stores shuttered throughout the reported quarter. At the end of the reported quarter, 3% of stores were shut and, currently, no stores are closed. Meanwhile, in EMEA, no stores were closed in the third quarter.
Outlook
For fiscal 2023, the Zacks Rank #3 (Hold) company expects constant dollar revenue growth of 3%, down from the earlier mentioned 5-6%. Management expects North Face to grow at least 14%, up from the previously communicated 12%. Vans for the fiscal year will now be down in the high-single digits compared with the prior mentioned mid-single digits.
VFC forecasts gross margins to decline 200 bps year over year compared with the prior mentioned decline of 100-150 bps. The adjusted operating margin is envisioned to be 9.5%, down from the earlier mentioned 11%. V.F. Corp envisions adjusted earnings per share of $2.05-$2.15 compared with $2.40-$2.50 stated earlier.
Adjusted cash flow from operations is likely to be $0.7 billion for fiscal 2023, down from the prior stated $0.9 billion. Capital expenditure is expected to be $200 million compared with the earlier stated $230 million. Inventory is likely to lower by $300 million.
For fiscal 2024, revenues are anticipated to grow in the low-single-digit range on a constant-currency basis. Gross and operating margins are likely to expand, respectively. Operating income is expected to grow in the double-digits, whereas the operating cash flow is likely to grow faster than earnings.
Image Source: Zacks Investment Research
Notably, the VFC stock has lost 0.1% in the past three months against the industry’s growth of 10.6%.
Stocks to Consider
Some better-ranked companies from the Zacks Consumer Discretionary sector are PVH Corp (PVH - Free Report) , Oxford Industries (OXM - Free Report) and Ralph Lauren (RL - Free Report) .
PVH Corp currently carries a Zacks Rank #2 (Buy). PVH has a trailing four-quarter earnings surprise of 22.9%, on average. PVH has a long-term earnings growth rate of 10.2%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PVH Corp’s current financial-year sales and EPS indicates declines of 3.1% and 18.6%, respectively, from the year-ago period’s reported levels.
Oxford Industries currently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 18.9%, on average.
The Zacks Consensus Estimate for Oxford Industries’ current financial-year sales and earnings suggests growth of 23.1% and 34.2% from the year-ago period’s reported numbers, respectively.
Ralph Lauren, a footwear and accessories dealer, has a Zacks Rank of 2 at present. RL has a trailing four-quarter earnings surprise of 28.7%, on average.
The Zacks Consensus Estimate for Ralph Lauren’s next financial-year sales and EPS suggests growth of 5% and 13.4%, respectively, from the year-ago reported figures.