V.F. Corporation (VFC) reported earnings per share of $2.22 per share in the third quarter of 2010, which outpaced the Zacks Consensus Estimate of $2.11 by 11 cents. Results also surpassed the prior-year quarter’s earnings of $1.94. The strong results came from robust sales across all brands.
Revenue Discussion
V.F. Corp.’s 7.0% increase in sales to $2,232.4 million compared with $2,093.8 million in the prior-year quarter was aided by strong performance in almost all its businesses. Total revenue surpassed the Zacks Consensus Estimate of $2,210 million.
Segment Details
In Outdoor & Action Sports, business from both the Americas and beyond contributed toward the revenue increase of 14.0% year over year. Asia came out to be strongest region with a revenue growth of 38.0% in the quarter.
Among the other segments, Jeanswear added 1.0% toward revenue growth; Sportswear negatively impacted revenue growth by 13.0% as the timing for the shipments of Nautica was moved to the fourth quarter, Contemporary Brands inched up 1.0% and Imagewear Revenues climbed 10.0%, aided by growth in Image and Licensed Sports Apparel businesses.
The International and Direct-to-Customer segments are significant long-term drivers of organic growth and healthy margin. Although overall International revenues grew marginally by 10% during the quarter, revenue sin Asia region soared 37%, sustaining its growth momentum.
The Direct-to-Customer segment posted an increase of 10% in revenues, driven by the opening of new stores and healthy comparable-store sales. During the quarter, the company opened 21 stores, bringing the total store count to 779 at the end of the quarter.
Margins
Low product costs coupled with better gross margins at retail stores and lower inventories supported the gross margin expansion of 200 basis points to 46.5% in the quarter. Operating margin came in at 15.9% compared with 15.2% reported in the prior-year quarter.
Balance Sheet and Cash Flow
V.F. Corp. ended the quarter with cash and cash equivalents of $403.0 million, total long-term debt of $936.5 million and shareholders’ equity of $3,938.3 million. The company has repurchased 4.0 million shares till now, aggregating $322 million.
The company generated $448.6 million of cash from operations and anticipates cash flow to surpass $850 million in fiscal 2010. Inventories during the quarter rose 3.0%.
Guidance
The stronger-than-expected results prompted management to raise its guidance. The company now expects topl-ine growth of 5.0% to $7.6 billion compared with the previous guidance of 4-5%. V.F. Corp. now expects fiscal 2010 earnings in the range of $6.25 to $6.30 per share, up from the previous guidance of $6.10 and well above the current Zacks Consensus Estimate of $6.18.
VF’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.
V F CORP (VFC): Free Stock Analysis Report
Zacks Investment Research
