VF Corporation (NYSE: VFC) today announced results for its second quarter ended June 30, 2012. All per share amounts are presented on a diluted basis. All references to “organic” financial data exclude the Timberland ® and Smartwool ® brands (“Timberland”), acquired on September 13, 2011. “Adjusted amounts” refer to non-GAAP measures that exclude Timberland acquisition-related expenses and the gain on the sale of John Varvatos Enterprises, Inc. (“John Varvatos”) as described in the “Adjusted Amounts” paragraph at the end of this release.
“We’ve reached the halfway mark of the year, and are right on track to deliver another year of strong and very profitable growth to our shareholders,” said Eric Wiseman, VF Corporation Chairman and Chief Executive Officer. “The strength of VF’s business model – a diverse portfolio strategy supported by an intense focus on financial and operational disciplines – provides us with a clear competitive advantage as we successfully navigate through an increasingly uncertain economic environment.”
Second Quarter Review
Revenues rose 16 percent to $2.1 billion from $1.8 billion in 2011, and included $239 million from Timberland. Organic revenue growth in the quarter was 3 percent (6 percent in constant dollars), driven by strong growth in the Outdoor & Action Sports and international businesses. Revenue growth in the quarter was tempered by unseasonably warm weather that caused a slight shift in revenues from the second quarter to the first, and by the sale of John Varvatos in April 2012.Gross margin was better than anticipated in the quarter, rising by 20 basis points to 46.1 percent compared with 45.9 percent in the same period in 2011 as the impact of higher Jeanswear product costs eased. The comparison was impacted by a 65 basis point benefit to gross margin in the 2011 quarter from a facility closure. Operating income was $169 million on an adjusted basis in the second quarter of 2012. As anticipated, adjusted operating income was impacted by a $25 million loss from Timberland’s operations reflecting the highly seasonal nature of that business and excludes acquisition-related expenses of $5 million. On a GAAP basis, second quarter operating income was $164 million compared with $189 million in the same period of the prior year. Operating margin was 7.9 percent on an adjusted basis compared to 10.3 percent reported in the second quarter of 2011. Margin comparisons are negatively impacted by 230 basis points from the Timberland loss as well as a 40 basis point impact from higher pension expense in the 2012 quarter. On a GAAP basis, operating margin was 7.7 percent. The tax rate of 15.1 percent in the quarter includes a 600 basis point, or $11 million, benefit triggered by the gain on the sale of John Varvatos. Net income on an adjusted basis was $123 million, which excludes Timberland acquisition-related expenses and the gain on the John Varvatos sale, compared to $129 million in the same period last year. Adjusted earnings per share declined 5 percent to $1.11 per share from $1.17 in last year’s same period, reflecting a loss of $0.12 per share from Timberland and an $0.11 per share combined negative impact from foreign currency translation and higher pension expense ($0.06 and $0.05 per share, respectively). Adjusted earnings per share exclude a $0.32 per share gain from the sale of John Varvatos (which includes $0.10 per share from the tax benefit noted above), and $0.03 per share in acquisition-related expenses. In the second quarter of 2011, earnings of $1.17 per share included a $0.07 per share benefit from the aforementioned facility closure. On a GAAP basis, second quarter net income was $155 million while earnings grew 20 percent to $1.40 per share. First Half Review Revenues increased 24 percent to $4.7 billion from $3.8 billion in the first half of 2011, reflecting growth in every coalition and $595 million from Timberland. Organic revenue growth in the period was 8 percent (10 percent in constant dollars). Net income on an adjusted basis increased 3 percent to $341 million in the first half of 2012 from $330 million reported in the 2011 period. Adjusted earnings per share rose 2 percent in the current period to $3.05 from $2.99 last year. Timberland had a neutral impact on first half adjusted earnings per share, while foreign currency translation and higher pension expense negatively impacted earnings by $0.20 per share in the first six months of 2012. Adjusted earnings per share in the first half of 2012 exclude the $0.32 per share gain from the sale of John Varvatos and $0.06 per share in acquisition-related expenses. Earnings per share in the 2011 period benefitted from $0.18 in special items including the aforementioned $0.07 gain from a facility closure. On a GAAP basis, first half net income was $371 million while earnings increased 11 percent to $3.31 per share. Coalition Review Outdoor & Action Sports revenues increased 45 percent in the second quarter, with organic revenue growth of 12 percent (16 percent in constant dollars). The addition of the Timberland ® and Smartwool ® brands contributed $239 million to revenues. Global revenues of The North Face ® brand during the quarter increased 14 percent (16 percent in constant dollars), with the Americas, Europe and Asia regions each growing in excess of 15 percent in constant dollars. The North Face ® brand’s direct-to-consumer business continued to post healthy growth, up 9 percent in the quarter. The Vans ® brand achieved a 25 percent (29 percent in constant dollars) increase in global revenues in the quarter, with double-digit revenue growth in the Americas, Europe and Asia. The Vans direct-to-consumer business also demonstrated solid results, with revenues rising by 18 percent. As anticipated, Timberland’s revenues were flat in the quarter (up 2 percent in constant dollars). Excluding Timberland, Outdoor & Action Sports operating income rose 22 percent and operating margin increased 110 basis points to 13.6 percent from 12.5 percent in the 2011 period. On a GAAP basis, due to the seasonally driven loss from Timberland and acquisition-related expenses, operating income for the coalition declined 8 percent and the operating margin was 7.9 percent.