Yahoo Lifestyle VF Corp. Shows Signs of Turnaround Progress in Q3
Updated 4:27 p.m. ET Jan. 29
VF Corp. showed signs of progress in its turnaround during the fiscal third quarter.
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Net earnings for the quarter tallied $167.1 million, or 43 cents a share, comparing favorably to losses of $42.5 million, or 11 cents, a year earlier.
Adjusted earnings rose to 62 cents from 45 cents a year earlier. That put profits 28 cents ahead of the 34 cents Wall Street analysts had penciled in, according to Yahoo Finance.
Revenues for the quarter ended Dec. 28 rose 2 percent to $2.8 billion.
While the results sent shares of VF up more than 6 percent in premarket trading, the momentum didn’t hold and shares of the company closed down 3.9 percent to $25.56 on Wednesday.
Investors might have been reacting to the outlook, which implies that revenues will fall by 1 to 2 percent in the second half overall.
“We did a little better in the third quarter driven by the stronger-than-expected DTC and outsized wholesale performance and expect the fourth-quarter trend to be a little lower relative to the third quarter,” said Bracken Darrell, president and chief executive officer, on a conference call with analysts. “Turnarounds are not linear.”
But Darrell also said — in no uncertain terms — that the VF turnaround has taken flight.
“What I’m most excited about is what you really can’t see yet,” the CEO said. “Our transformation is well underway, and the third quarter was an excellent quarter of progress across our business inside the company. We’re systematically making, remaking, the company for long-term value creation, double-digit operating margins and strong and sustained growth.
“While we significantly improved profitability, the key point to make here is that the actions we’ve taken so far are delivering results,” he said.
The company’s largest brand, The North Face, pushed sales up 5 percent to $1.3 billion while Timberland was ahead 11 percent to $527 million.
Vans and Dickies performed better than they did in the fiscal second quarter, but both businesses are still struggling. Vans sales fell 9 percent to $607.6 million in the third quarter while the much smaller Dickies was off 10 percent to $133.6 billion.
Darrell’s turnaround plan had four priorities and the CEO said progress has been made on all fronts.
1. Lower the cost base. The company is on track to deliver $300 million in initial savings from its Reinvent plan, booking $55 million in the quarter. VF is now progressing on the next phase of Reinvent initiatives, targeting an additional $250 million to $300 million in selling, general and administrative expense savings, as the company laid out at its investor day last year.
2. Strengthen the balance sheet. VF sold Supreme to EssilorLuxottica in October and used the proceeds to help it push its net debt down to $4.7 billion, a $1.9 billion reduction from a year earlier.
3. Fix the U.S. business. Darrell set up a global commercial model intended to bring performance in the company’s home market up to par with its international businesses. In the Americas, sales returned to growth for the first time in two years, rising 1 percent to $1.5 billion in the quarter.
4. Turn around the Vans business. Vans remains a work in progress under global president Sun Choe, who left a successful run at Lululemon Athletica Inc. to lead the brand.
“I feel very good about the steps we’re taking, but sustained turnarounds take time,” Darrell said. “Underneath the numbers, I want to call out a few things, primarily in our key focus areas of product and marketing.
“New products continue to outperform our big established franchises,” he said. “We won’t rely on just one style to build our business in the future, and we have momentum in our newest styles, both Hylane and Upland. In many ways, the Vans brand continues to have an enormous potential.”
But he’s not going to overhype that potential.
“I’m going to keep the expectations low for Vans as long as possible, because I want to give her plenty of room to operate,” the CEO said of Choe. “She is a real operator. She is deep in the middle of stuff. You’ll probably see a few things she’s touched at back-to-school, even more at holiday and as you go into next year even more and more, but it’s going to take time.”
At least Brian Yarbrough, an analyst at Edward Jones, is willing to give the company some more time.
“We expect management’s plan to reduce Vans product offerings by 30 percent in the stores and improve the marketing of Vans will lead to growth accelerating over the longer term, which we do not believe is currently reflected in the stock price,” Yarbrough said. “We expect that new management, marketing and brand innovation will take time. Improved demand trends at Vans should help propel sales and earnings over the longer term.”
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