VF Corporation reported financial results for its third quarter ended 26th December, 2020.
“Our third quarter results were largely ahead of expectations despite the impact of additional COVID-19-related disruption to our business,” said Steve Rendle, VF’s Chairman, President and CEO.
“Our portfolio remains on track to return to growth in the fiscal fourth quarter and we are confident in VF’s plans to accelerate growth into fiscal 2022 and to continue advancing our business model transformation. We remain optimistic about the year ahead and look forward to improvements in our geopolitical, macroeconomic and pandemic-related situations,” continued Steve.
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 certain Dickies® occupational workwear products that have historically been sold through the business-to-business channel.
During the three months ended March 2020, the company determined that the Occupational Workwear business met the held-for-sale and discontinued operations accounting criteria. 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.
The adjusted amounts exclude transaction and deal related expenses associated primarily with the acquisition of the Supreme® brand. Total transaction and deal related expenses were approximately $7 million in the third quarter and the first nine months of fiscal 2021.
The adjusted amounts exclude costs related to a transformation initiative for Asia-Pacific regional operations as well as certain cost optimization activities and other charges indirectly related to the strategic review of the Occupational Workwear business. The adjusted amounts also exclude costs related to strategic business decisions in South America and the operating results of jeanswear wind down activities in South America following the spin-off of Kontoor Brands.
Total costs were approximately $39 million in the third quarter of fiscal 2021 and $77 million in the first nine months of fiscal 2021. Adjusted amounts for the first nine months of fiscal 2021 also exclude approximately $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 $0.10 during the third quarter of fiscal 2021 and $0.29 during the first nine months of fiscal 2021. All adjusted amounts referenced herein exclude the effects of these amounts.
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, over 95 percent of VF’s owned retail stores were open at the beginning of the third quarter, with all VF-owned retail stores re-opened by mid-October. Since that time additional stores have been re-closed, with approximately 15 percent of stores closed by the end of the quarter. The majority of the closures were Vans® stores, predominantly based in California. In addition, other stores are operating with reduced capacity. Stores in North America have begun to re-open since the end of the quarter and currently less than 10 percent of stores are closed in the region.
In the EMEA region, nearly all of VF’s owned retail stores were open at the beginning of the third quarter. Since that time additional stores have been re-closed, with approximately 50 percent of stores closed by the end of the quarter. Additional stores in the EMEA region have re-closed since the end of the quarter and currently over 60 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 decreased 6 percent (down 8 percent in constant dollars) to $3.0 billion driven by store closures and lower consumer demand as a result of the COVID-19 outbreak and related government actions and regulations.
Gross margin decreased 250 basis points to 54.7 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 150 basis points to 55.7 percent.
Operating income on a reported basis was $412 million. On an adjusted basis, operating income was $458 million. Operating margin was 13.9 percent. Adjusted operating margin was 15.4 percent.
Earnings per share was $0.83 on a reported basis. On an adjusted basis, earnings per share was $0.93.
Inventories were down 14 percent compared with the same period last year. During the quarter, VF returned approximately $191 million of cash to shareholders through dividends. As part of the company’s liquidity preservation actions during the ongoing COVID-19 outbreak, the company has suspended its share repurchase program. VF has $2.8 billion remaining under its current share repurchase authorization.
VF’s full year outlook assumes no material deterioration to the company’s current business operations as a result of COVID-19, governmental actions and regulations. VF’s full year fiscal 2021 outlook has been updated.
Revenue is now expected to be in the range of $9.1 billion to $9.2 billion, reflecting a decrease of 12 percent to 13 percent on an adjusted basis. The updated outlook includes approximately $125 million of revenue from the Supreme® brand. This compares to the previous expectation of at least $9.0 billion, reflecting a decrease of approximately 14 percent on an adjusted basis.
Adjusted earnings per share is expected to be approximately $1.30, reflecting a decrease of approximately 51 percent. The updated outlook includes approximately $0.05 of adjusted earnings per share from the Supreme® brand. This compares to the previous expectation of at least $1.20, reflecting a decrease of approximately 55 percent. Adjusted free cash flow is now expected to be approximately $650 million. This compares to the previous expectation of greater than $600 million.