VF Corporation reported financial results for its fourth quarter and full year ended 3rd April, 2021.
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“I could not be more pleased with how our organization navigated fiscal 2021,” said Steve Rendle, Chairman, President and Chief Executive Officer.
“Early in the year we took important actions to protect our people and the enterprise, while maintaining investments to drive our transformation and accelerate organic growth. At the same time, we took bold, forward-looking actions to spark additional growth and value creation. As a result, we are exiting this year in a position of strength with broad based momentum across the portfolio,” continued Rendle.
On 21st January, 2020, VF announced its decision to explore the divestiture of its Occupational Workwear business. The Occupational Workwear business is comprised primarily of the following brands and businesses: Red Kap®, VF Solutions®, Bulwark®, Workrite®, Walls®, Terra®, Kodiak®, Work Authority® and Horace Small®. The business also includes a license for certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel.
As of 28th March, 2020, the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria, which continued to be met as of 3rd April, 2021. Accordingly, the company has reported the related held-for-sale assets and liabilities as assets and liabilities of discontinued operations and included the operating results and cash flows of the business in discontinued operations for all periods presented. In late April 2021, VF entered into a definitive agreement to sell its Occupational Workwear business.
The adjusted amounts exclude transaction and deal related expenses associated primarily with the acquisition and integration of the Supreme® brand. Total transaction and deal related expenses were approximately US$12 million in the fourth quarter of fiscal 2021 and US$19 million in fiscal 2021.
The adjusted amounts exclude costs related to VF’s business model transformation, a transformation initiative for Asia-Pacific regional operations, certain cost optimization activities and other charges indirectly related to the strategic review of the Occupational Workwear business and costs related to strategic business decisions in South America. Total costs were approximately US$38 million in the fourth quarter of fiscal 2021 and US$115 million in fiscal 2021. Adjusted amounts for fiscal 2021 also exclude approximately US$42 million of non-cash non-operating expenses related to the release of certain currency translation amounts associated with the wind down activities in South America.
Combined, the above items negatively impacted earnings per share by US$0.11 during the fourth quarter of fiscal 2021 and US$0.40 during fiscal 2021. All adjusted amounts referenced herein exclude the effects of these amounts.
Free cash flow represents cash flow from operating activities, less capital expenditures.
Reconciliations of measures calculated in accordance with GAAP to adjusted amounts are presented in the supplemental financial information included with this release, which identifies and quantifies all excluded items, and provides management’s view of why this information is useful to investors.
As the global impact of COVID-19 continues, VF remains first and foremost focused on a people-first approach that prioritizes the health and well-being of its employees, customers, trade partners and consumers around the world. To help mitigate the spread of COVID-19 and in response to public health advisories and governmental actions and regulations, VF has modified its business practices, including the temporary closing of offices and retail stores, instituting travel bans and restrictions and implementing health and safety measures including social distancing and quarantines.
The majority of VF’s supply chain is currently operational. Suppliers are complying with local public health advisories and governmental restrictions which has resulted in isolated product delays. VF is working with its suppliers to minimize disruption. VF’s distribution centers are operational in accordance with local government guidelines while maintaining enhanced health and safety protocols.
In North America, approximately 15 percent of stores were closed at the end of the third quarter. The majority of the closures were Vans® stores, predominantly based in California. In addition, other stores were operating with reduced capacity. Since that time, most stores have re-opened, including all VF-owned stores in California, with less than 5 percent of stores closed at the end of the fourth quarter. Currently less than 5 percent of stores remain closed.
In the EMEA region, approximately 50 percent of stores were closed at the end of the third quarter. Since that time additional stores have been re-closed, with approximately 60 percent of stores closed at the end of the fourth quarter. Some stores in the EMEA region have re-opened since the end of the quarter and currently approximately 20 percent of stores are closed.
Nearly all of VF’s owned retail stores in the APAC region, including Mainland China, were open during the quarter and remain open.
VF is continuing to monitor the COVID-19 outbreak globally and will comply with guidance from government entities and public health authorities to prioritize the health and well-being of its employees, customers, trade partners and consumers. As COVID-19 uncertainty continues, VF expects ongoing disruption to its business operations.
Revenue in fourth quarter fiscal 2021 increased 23 percent (up 19 percent in constant dollars) to US$2.6 billion. Excluding the impact of acquisitions, revenue increased 16 percent (up 12 percent in constant dollars) driven by VF’s largest brands, e-commerce growth and an increase in the APAC region, which experienced a significant negative impact from COVID-19 in the prior year period. The fourth quarter of fiscal 2021 also included an extra week when compared to the fiscal 2020 period due to VF’s 53-week fiscal 2021.
Gross margin decreased 100 basis points to 52.1 percent, primarily driven by elevated promotional activity to clear excess inventory and the timing of net foreign currency transaction activity. On an adjusted basis, gross margin decreased 120 basis points, including a 60 basis point positive impact from acquisitions, to 52.7 percent.
Operating income on a reported basis was US$122 million. On an adjusted basis, operating income increased 98 percent to US$173 million, including a US$34 million contribution from acquisitions. Operating margin on a reported basis increased to 4.7 percent. Adjusted operating margin increased 260 basis points, including a 100 basis point positive impact from acquisitions, to 6.7 percent.
Earnings per share was US$0.16 on a reported basis. On an adjusted basis, earnings per share increased 169 percent (up 150 percent in constant dollars) to US$0.27, including a $0.06 contribution from acquisitions.
Revenue in full year fiscal 2021 decreased 12 percent (down 14 percent in constant dollars) to US$9.2 billion. On an adjusted basis, excluding the impact of acquisitions, revenue decreased 13 percent (down 15 percent in constant dollars), driven by store closures and lower consumer demand as a result of the COVID-19 outbreak and related government actions and regulations. The fourth quarter of fiscal 2021 also included an extra week when compared to the fiscal 2020 period due to VF’s 53-week fiscal 2021.
Gross margin decreased 260 basis points to 52.7 percent, primarily driven by elevated promotional activity to clear excess inventory and the timing of net foreign currency transaction activity, partially offset by favorable mix shift toward higher margin businesses. On an adjusted basis, gross margin decreased 220 basis points, including a 10 basis point positive impact from acquisitions, to 53.3 percent.
Operating income on a reported basis was US$608 million. On an adjusted basis, operating income decreased 45 percent (down 47 percent in constant dollars) to US$742 million, including a US$34 million contribution from acquisitions. Operating margin on a reported basis decreased 220 basis points to 6.6 percent. Adjusted operating margin decreased 480 basis points, including a 20 basis point positive impact from acquisitions, to 8.0 percent.
Earnings per share was US$0.91 on a reported basis. On an adjusted basis, earnings per share decreased 51 percent (down 54 percent in constant dollars) to US$1.31, including a US$0.06 contribution from acquisitions.
Inventories were down 18 percent compared with the same period last year. In fiscal 2021, VF returned approximately US$760 million of cash to shareholders through dividends. Cash flow provided by operating activities from continuing operations was approximately US$1.2 billion in fiscal 2021 and free cash flow from continuing operations was approximately US$1.0 billion.
VF ended fiscal 2021 with approximately US$1.45 billion of cash and short-term investments in addition to more than US$2.2 billion remaining under VF’s revolving credit facility. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program and did not repurchase any shares in fiscal 2021. VF has US$2.8 billion remaining under its current share repurchase authorization.
VF’s outlook for full year fiscal 2022 is on an adjusted continuing operations basis.
Revenue is expected to approximate US$11.8 billion, reflecting growth of approximately 28 percent, including an approximate US$600 million contribution from the Supreme® brand. By segment, revenue for Outdoor is expected to increase between 23 percent and 25 percent; revenue for Active is expected to increase between 34 percent and 36 percent; and, revenue for Work is expected to increase between 10 percent and 12 percent.
International revenue is expected to increase between 25 percent and 27 percent. By geographic region, in the EMEA region, revenue is expected to increase between 29 percent and 31 percent. In the Asia Pacific region, revenue is expected to increase between 18 percent and 20 percent. And, in the Americas (non-U.S.) region, revenue is expected to increase between 28 percent and 30 percent.
Direct-to-consumer revenue is expected to increase between 38 percent and 40 percent, including Digital revenue growth of between 29 percent and 31 percent.
Adjusted gross margin is expected to exceed 56.0 percent, which represents an estimated increase of more than 270 basis points.
Adjusted operating margin is expected to approximate 12.8 percent, which represents an estimated increase of approximately 480 basis points.
Adjusted earnings per share is expected to approximate US$3.05, including an approximate US$0.25 contribution from the Supreme® brand. Adjusted cash flow from operations is expected to exceed US$1.0 billion.
Other full year assumptions include an effective tax rate of approximately 15 percent and capital expenditures of approximately US$350 million.
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VF’s Board of Directors declared a quarterly dividend of US$0.49 per share, payable on 21st June, 2021, to shareholders of record on 10th June, 2021. Subject to approval by its Board of Directors, VF intends to continue to pay its regularly scheduled dividend and is not currently contemplating the suspension of its dividend.