VF Corporation (NYSE: VFC) today announced results for its third quarter ended September 29, 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.
“Having achieved yet another quarter of record revenue, gross margin and earnings per share performance, we remain on track to deliver a year of outstanding results to our shareholders,” said Eric Wiseman, VF Chairman and Chief Executive Officer. “Our third quarter results clearly demonstrate VF’s unique competitive advantages – diversity across brands, geographic regions and channels; powerful brands that resonate with consumers; and business disciplines that enable the consistent, successful execution of our growth strategies.”
Wiseman concluded, “We are confident in our ability to deliver a very strong fourth quarter across our businesses, supported by higher levels of strategic investments in key brands and markets that are proven drivers of both top and bottom line growth.”
Third Quarter 2012 ReviewRevenues rose 14 percent to $3.1 billion from $2.8 billion in 2011. Third quarter revenues from Timberland were $499 million compared with $164 million in the same period of last year; the acquisition was completed on September 13, 2011. Organic revenue growth in the quarter was 2 percent (6 percent in constant dollars) driven by continued strength in the Outdoor & Action Sports, international and direct-to-consumer businesses. The Outdoor & Action Sports, Jeanswear, Sportswear and Imagewear coalitions all achieved growth on a constant dollar basis. The sale of John Varvatos impacted VF’s organic revenue growth by 1 percentage point in the third quarter. Gross margin rose by 140 basis points to a record 46.7 percent, compared with 45.3 percent in the same period of 2011 with improvements in nearly every business. The higher gross margin also reflects the continued shift in our revenue mix towards higher margin businesses. Operating income was $551 million on an adjusted basis in the third quarter of 2012 and included adjusted operating income from Timberland of $77 million. On a GAAP basis, third quarter operating income was $537 million compared with $430 million in the same period of the prior year. Acquisition-related expenses for Timberland in the third quarter of 2012 and 2011 were $14 million and $27 million, respectively. Adjusted operating margin was 17.5 percent compared to 16.6 percent in the third quarter of 2011. The current quarter’s operating margin was negatively impacted by 80 basis points by Timberland. On a GAAP basis, operating margin was a record 17.1 percent. Net income on an adjusted basis was $393 million compared to $321 million in the same period last year. Adjusted earnings per share increased 23 percent to $3.52 per share from $2.87 during last year’s same period. This increase includes the negative impacts from foreign currency translation ($0.18 per share) and higher pension expense ($0.05 per share). Timberland was accretive to third quarter adjusted earnings per share in 2012 and 2011 by $0.54 and $0.25, respectively. Adjusted earnings per share for the quarter exclude Timberland acquisition-related expenses of $0.10 in 2012 and $0.18 in 2011. On a GAAP basis, third quarter net income was $381 million while earnings grew 27 percent to $3.42 per share. Nine Months 2012 Review Revenues increased 20 percent to $7.8 billion from $6.5 billion in the first nine months of 2011. The Timberland acquisition accounted for 14 percentage points, or $931 million, of the revenue growth in the period. Organic revenue growth during the first nine months of 2012 was 6 percent; in constant dollars, organic revenue growth in the first nine months was 8 percent. All revenue comparisons include a negative impact of about 1 percentage point from the sale of John Varvatos during the period. Net income on an adjusted basis increased 13 percent to $734 million in the first nine months of 2012, up from $651 million reported in the same 2011 period. Adjusted earnings per share rose 12 percent during the first nine months to $6.56 from $5.87 in the same period last year. Through the first nine months of 2012, Timberland contributed $0.53 to adjusted earnings per share. Additionally, foreign currency translation and higher pension expense combined have negatively impacted earnings by $0.43 per share. Adjusted earnings per share in the first nine months of 2012 exclude the $0.32 per share gain from the sale of John Varvatos and $0.16 per share in Timberland acquisition-related expenses. On a GAAP basis, net income in the first nine months of 2012 was $752 million while earnings increased 18 percent to $6.72 per share. Coalition Review Outdoor & Action Sports delivered another quarter of record performance with revenues up 29 percent and organic revenue growth of 6 percent, or 11 percent in constant dollars. The addition of the Timberland ® and Smartwool ® brands contributed $499 million to revenues in the quarter. As anticipated, global revenue growth in the current quarter for The North Face ® brand moderated from prior periods, increasing 5 percent, or 8 percent in constant dollars. High single-digit growth in the Americas region and exceptionally strong growth in Asia were offset by a mid-single digit constant dollar decline in Europe. The North Face ® brand remains on track for mid-teen constant dollar revenue growth both in the fourth quarter and for the full year. The Vans ® brand achieved a 21 percent (26 percent in constant dollars) increase in global revenues in the quarter, with double-digit revenue growth in the Americas, Europe and Asia regions. Based on the Vans ® brand’s exceptional performance year to date, full year constant dollar revenue growth should approximate 25 percent. On a full quarter basis, Timberland constant dollar revenues declined slightly in the third quarter. On a full year basis, Timberland should achieve a modest increase in revenues on a constant dollar basis. Excluding Timberland, Outdoor & Action Sports operating income rose 16 percent and operating margin increased 220 basis points to an all-time high of 25.7 percent compared with 23.5 percent in the 2011 period. On a GAAP basis, operating income for the coalition increased 29 percent with a flat year-over-year operating margin, reflecting the impact of Timberland.