VF Corp (VFC) Stock Falls As Q4 Earnings & Revenues Lag
Zacks Investment Research | Feb 16, 2018 01:25AM ET
VF Corporation (NYSE:VFC) reported lower-than-expected fourth-quarter 2017 results, wherein both earnings and revenues lagged estimates. However, both top and bottom lines improved year over year. This marked the company’s top and bottom line miss after two consecutive quarter beats. Further, the company provided guidance for the transitional quarter ending March 31, 2018.
Following the dismal results, shares of this branded apparel retailer declined nearly 5.4% in the pre-market trading session. However, this Zacks Rank #3 (Hold) stock has jumped 33% in the last six months, outperforming the VF Corporation Quote
VF Corp. generated total revenues, including royalty income, of $3,649.3 million, that increased about 20% year over year but lagged the Zacks Consensus Estimate of $3,662 million. Net sales of $3,624.8 million also advanced 20% from the prior-year quarter, including contributions from the Williamson-Dickie acquisition. On a currency-neutral basis, revenues jumped 18%.
Excluding the Williamson-Dickie acquisition, revenues were up 12%, while currency-neutral revenue grew 10%, driven by continued strength in the company’s international and direct-to-customer platforms, Outdoor & Action Sports coalition and workwear businesses.
Adjusted gross margin increased 60 basis points (bps) to 51.6%, thanks to better pricing, lower restructuring expenses and a favorable mix-shift toward high margin businesses, which was partly negated by Williamson-Dickie acquisition and foreign currency headwinds. Excluding the aforementioned acquisition, adjusted gross margin expanded 140 bps to 52.4%. Notably, foreign currency hurt gross margin by 10 bps.
Adjusted operating income rose 6% to $497 million, while the adjusted operating margin contracted 180 bps to 13.6%. Excluding Williamson-Dickie, adjusted gross margin contracted 130 bps to 14.1%. Currency headwinds affected operating margin by 30 bps.
Segment Details
Revenues of Outdoor & Action Sports grew 16% to $2,500.2 million (up 13% on a currency-neutral basis).
Jeanswear revenues of $709.4 million rose 2% year over year (up 1% on a currency neutral basis).
Imagewear revenues rose 176% (176% on a currency-neutral basis) to roughly $406.4 million.
Other revenues dropped 1% to $33.3 million, on both reported and currency-neutral basis.
Financial Details
VF Corp. ended 2017 with cash and cash equivalents of $566.1 million, long-term debt of $2,187.8 million and shareholders’ equity of $3,791.9 million. In 2017, the company generated $1,474.7 million cash from operating activities.
Concurrently, the company declared a quarterly dividend of 46 cents per share, which is payable on Mar 19, to shareholders with record as on Mar 9.
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Divestitures
During the fourth quarter, the company decided upon selling its Nautica brand business. Earlier, the company completed the sale of its Licensed Sports Group business, consisting the Majestic brand, to Fanatics, Inc. on Apr 28, 2017.
Also, management implemented its plan of discontinuing its licensing unit, which led the company to bring assets of its JanSport brand under the “held for sale” category. In August 2016, the company completed the sale of its Contemporary Brands businesses including the 7 For All Mankind, Splendid and Ella Moss brands.
All these businesses are classified as discontinued operations in the company’s financial statements.
Outlook
As previously announced, the company has decided to change its fiscal year-end to the Saturday closest to Mar 31 from the current Saturday closest to Dec 31. This change will be effective from Mar 31, 2018. Consequently, the company provided guidance for the transitional quarter ending Mar 31, 2018.
VF Corp. expects revenues of nearly $2.9 billion, an increase of 16%. This includes a $200 million contribution from the Williamson-Dickie acquisition. Excluding the Williamson-Dickie acquisition, revenues are likely to increase at a high single-digit rate.
The company envisions adjusted earnings per share for the transitional quarter to be around 65 cents, marking 27% growth, including a 2 cents contribution from the aforementioned acquisition. Excluding the effects of this acquisition, adjusted earnings per share is estimated to jump more than 20%.
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