V.F. Corporation (VFC) reported fourth quarter 2010 adjusted earnings of $1.78 per share, striding ahead of the Zacks Consensus Estimate by 13 cents. Results also surpassed $1.62 earned in the prior-year quarter by almost 10%. Adjusted earnings were $196.1 million, 8% higher than $181.3 million in the fourth quarter 2009.
The strong results came from robust sales across all brands.
Including an impairment charge of $141.8 million or $1.29 per share, net income reported by the company in the quarter under review was $54.2 million or 49 cents per share, down from $68.9 million or 60 cents per share in the year-ago quarter. Impairment charge in the prior-year quarter totaled $114.4 million or $1.02 per share.
Full-year 2010 adjusted earnings of $6.46 per share outpaced the Zacks Consensus Estimate by 15 cents and the year-ago figure by $1.30. Adjusted earnings increased 24% year over year to $713.4 million in 2010.
Including the impairment charge of $141.8 million or $1.29 per share, net income in 2010 was $571.4 million or $5.18 cents per share, up from $461.3 million or $4.13 per share in 2009.
Operational Performance
V.F. Corp.’s revenues of $2.1 billion in the fourth quarter marginally exceeded the Zacks Consensus Estimate of $2.0 billion. Revenues eclipsed the year-ago figure by 11%. On a constant currency basis, revenues increased 12% year over year.
Double-digit revenue growth at Outdoor & Action Sports and Sportswear coupled with single-digit growth at Jeanswear and Imagewear led to the overall climb. However, revenue decline at Contemporary Brands was a partial offset.
Full-year 2010 revenues were $7.7 billion, surpassing the Zacks Consensus Estimate of $7.6 billion and year-ago results of $7.2 billion.
Costs and operating expenses, on a year-over-year basis, increased 15% in the fourth quarter and 6% in the fiscal year. Gross margins in the fourth quarter reached a record 46.6%, up from a previous high of 46.3% in the year-ago quarter. 2010 gross margin expanded 240 basis points to 46.7%.
Operating income increased 6% year over year to reach $275.3 million in the quarter. The full year saw a healthy 19% rise in operating income. Operating margin in the quarter contracted 70 basis points owing to incremental marketing investments. It, however, expanded 140 basis points in 2010.
Segment Performance
Revenue at Outdoor & Action Sports increased 20% year over year in the quarter. Business from both the Americas and beyond contributed to the revenue increase. Fiscal year revenue increased 14% from 2009.
Fourth quarter operating income was $180 million, up from $142 million in the year-ago quarter while 2010 operating income increased to $642 million from $492 million in 2009.
Jeanswear revenue increased a respective 7% and 0.6% in the relevant quarter and fiscal year. Operating income in the quarter increased to $112 million from $102 million in the year-ago quarter. Fiscal year 2010 operating income was $432 million, up from $371 million in 2009.
Imagewear revenue increased 5% both in the quarter and in 2010. Growth in the company’s flame-resistant apparel business, under the highly profitable Bulwark brand, contributed to the increase.
Fourth quarter operating income was $29 million, up from $26 million in the year-ago quarter while 2010 operating income increased to $111 million from $87 million in 2009.
Revenue at Sportswear improved 11% in the quarter. However, it inched down by 0.1% in 2010. Operating income in the quarter increased to $21 million from $17 million in the year-ago quarter. Fiscal 2010 operating income was $52 million, up from $51 million in 2009.
Contemporary Brands experienced a 9% decline in revenue in the quarter. However, revenue increased 5% in 2010. Operating loss was $8 million in the quarter, compared with a profit of $16 million in the year-ago quarter. Operating income in 2010 was $14 million, substantially down from $51 million in 2009.
During the quarter under review, international revenues increased 22% largely driven by strong growth in European Outdoor & Action Sports businesses and strength across the biggest brands in Asia. Fiscal 2010 international revenues increased 7%.
Direct-to-consumer revenues increased 13% in the quarter, driven by new store openings and comparable store growth. The company opened 23 stores across diverse brands in the quarter and 85 stored in 2010 bringing the total number of owned retail stores to 786 in 2010. Full-year direct -to-consumer revenues increased 13%.
Financial Update
V.F. Corp. ended 2010 with cash and cash equivalents of $792.2 million, up 8% from 2009 end.
Long-term debt totaled $935.9 million, a trifle lower than $938.5 million at 2009 end.
The company generated cash flow from operations of $1 billion in 2010, higher than $0.97 billion in 2009. Capital expenditure increased to $111 million from $85.9 million in 2009.
Dividend and Share Repurchase
In 2010, V.F. Corp. bought back 5.1 million shares for $412 million. The company also made $264 million in dividend payments.
The board of directors of V.F. Corp. also declared a quarterly cash dividend of 63 cents per share. The dividend will be paid on March 21, 2011 to shareholders of record as on March 11, 2011.
Looking into 2011
V.F. Corp. expects mid-teen percentage growth in Outdoor & Action Sports and mid-single digit revenue growth in Jeanswear, Imagewear, Sportswear and Contemporary segments. Considering this, the company projects total revenue to grow 8–9%.
V.F. Corp. also estimates a 15% growth in international revenues and a 10% to 15% revenue spurt in the direct-to-consumer business.
Operating margins are expected to be comparable to the 2010 level of 13.3%.
The company project earnings to be in a range of $7.00 to $7.10 per share.
Our Take
We expect V.F. Corp. to continue to deliver 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.
We maintain our Neutral rating on V.F. Corp. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
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. It competes with Gap Inc. (GPS) and Sears Holdings Corporation (SHLD).
GAP INC (GPS): Free Stock Analysis Report
SEARS HLDG CP (SHLD): Free Stock Analysis Report
V F CORP (VFC): Free Stock Analysis Report
Zacks Investment Research
