VF Corporation (VFC), one of the leading manufacturers of branded lifestyle apparel, recently reported better-than-expected first-quarter 2010 results on the heels of cost-control, effective inventory management, and robust sales across its outdoor and action sportswear markets, sending the stock up $1.38 or 1.6% to $88.50 in pre-market trading.

The quarterly earnings, excluding tax credit and restructuring expenses, came in at $1.44 per share that outpaced the Zacks Consensus Estimate of $1.14, and rose 58% from 91 cents delivered in the prior-year quarter. On a reported basis, including one-time items, earnings came in at $1.46 per share, up 60% year-over-year.

Revenue Discussion

Total revenue portrayed a slender increase of 1% year-over-year to $1,749.9 million. In terms of segments, the Outdoor and Action Sports division grew by 10%, while Contemporary Brands recorded growth of 16%. However, overall top-line growth was partially offset by declines of 7%, 2% and 1% in Jeanswear, Imagewear and Sportswear segments, respectively.

The International and Direct-to-Customer segments are the significant long-term drivers of organic growth and healthy margin. Although overall International revenue grew marginally by 2% during the quarter, revenue in Asia region soared 31%, sustaining its growth momentum in fiscal 2010.

VF’s Direct-to-Customer segment posted an increase of 23% in revenue, reflecting opening of new stores and healthy comparable-store sales. During the quarter, the company opened 16 stores bringing the total store count to 766 at the end of the quarter.


The quarterly gross margin reached a record 46.7%, expanding 450 basis points, whereas operating margin increased 340 basis points to 12.8%.

Financial Aspects

VF ended the quarter with cash and cash equivalents of $718.6 million, total long-term debt of $1,140.5 million, and shareholders’ equity of $3,824.9 million. The company also repurchased 1.5 million shares, aggregating $118 million and is scheduled to complete the buyback of 3 million shares in the first half of 2010.

During the quarter, the company generated $184.1 million of cash from operations, and now anticipates cash flow to surpass $800 million in fiscal 2010. Inventories during the quarter reduced 15%, primarily due to prudent inventory management.

2010 Guidance

The stronger-than-expected results prompted management to raise its guidance. VF now expects fiscal 2010 earnings at $5.90 per share, up from the previous guidance range of $5.60 to $5.70, and well above the current Zacks Consensus Estimate of $5.76.

Management now expects revenues to climb between 3% and 4% in fiscal 2010, up from the 2% to 3% growth target forecasted earlier. VF remains optimistic about Asia, and has predicted a revenue growth of over 25%. Outdoor and Action Sports division’s revenues are expected to increase by more than 10%.
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