V.F. Corporation (VFC) reported third-quarter 2011 adjusted earnings of $2.87 per share, striding ahead of the Zacks Consensus Estimate of $2.55. The result also surpassed earnings of $2.22 per share in the prior-year quarter.
Including costs of 18 cents related to the acquisition of The Timberland Company, earnings per share for the quarter came in at $2.69.
Operational Performance
V.F. Corp.’s revenue of $2,750.1 million in the third quarter exceeded the Zacks Consensus Estimate of $2,620.0 million. Revenues eclipsed the year-ago figure by 23.0%. Besides, double-digit revenue growth at all V.F. Corp.’s coalitions led to the overall climb.
Costs and operating expenses on a year-over-year basis increased 23.5% in the third quarter. Gross margin in the reported quarter declined 120 basis points to 45.3% from its previous high of 46.5% in the year-ago quarter, resulting from higher product costs.
Operating income increased robustly by 21.3% year over year to reach $430.1 million in the quarter. However, operating margin in the quarter declined 30 basis points to 15.6%.
Segment Performance
Revenue at Outdoor & Action Sports jumped 37% from the year-ago quarter to $1,436.8 million, of which Timberland acquisition contributed $163.6 million. Business from both the Americas and beyond contributed to the revenue increase. America’s revenue grew by 13% while International revenue spiked 38%. Third-quarter operating income increased 29% from the year-ago quarter.
Jeanswear revenue increased 8% to $613.4 million. Operating margin in the quarter remained strong at 15.1%.
Imagewear revenue increased 14% in the quarter to $277.6 million. Third-quarter operating income was 21.0%, higher than the year-ago quarter.
Revenue at Sportswear improved 18% in the quarter to $151.8 million. Operating income was up 33% from last year.
Contemporary Brands experienced a revenue increase of 11% to $126.2 million. Operating income was up by 55.0% than the year-ago quarter.
During the quarter under review, international revenues increased 44.0%, largely driven by solid growth in the Outdoor & Action Sports and Jeanswear businesses, along with strength across the biggest brands in Asia and Europe. Timberland contributed 15.0% to this growth.
Direct-to-consumer revenue increased 21.0% in the quarter, driven by new store openings and Timberland acquisition. The company opened 32 stores across diverse brands in the quarter, bringing the total number of owned retail stores to 1,077 at the end of third-quarter 2011.
Balance Sheet
V.F. Corp. ended third-quarter 2011 with cash and cash equivalents of $337.4 million and long-term debt of $1,835.1 million.
Dividend
The board of directors of V.F. Corp. declared a quarterly cash dividend of 72 cents per share, an increase of 14.0% from the prior-year quarter. The dividend will be paid on December 19, 2011 to shareholders of record as of December 9, 2011. This is the company’s 39th consecutive year of higher dividend payments to shareholders.
Looking into 2011
V.F. Corp. has raised its revenue guidance for fiscal 2011. Bolstered by better-than-expected quarterly results, the company now expects total revenue to grow in the range of 22.0% to 23.0% on the heels of an organic growth of 13.5%. V.F. Corp. had earlier expected an organic growth in the range of 12.0% to 13.0%.
The company has also raised its earnings guidance to $8.15 per share from its earlier announcement of $7.50 per share.
Our Take
We expect V.F. Corp. to continue delivering on its potential, given the proven performance across its segments, its focus to build brand image via incremental marketing spending and its committed returns to shareholders by virtue of share buybacks and dividend payouts.
Based in Greensboro, North Carolina, V.F. Corp. is one of the world’s largest apparel companies. The company, together with its subsidiaries, engages in the design, manufacture, and marketing of branded apparel and related products in the United States and internationally. Major competitors of the company are Gap Inc. (GPS) and Sears Holdings Corporation (SHLD).
V.F. Corp. currently retains a Zacks #2 Rank, which translates to a short-term Buy rating. However, we maintain a long-term Neutral recommendation on the stock.
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