Despite strong earnings and robust sales, VF Corp. posted results in the latest quarter that missed Wall Street's expectations. Total sales improved by 5 percent to $3,393 million for the company's second fiscal quarter ended on Sept. 30, or by 7 percent in constant currencies. Adjusted to exclude the spin-off of its lower-margin Kontoor jeans business, and the acquisition of Altra and Icebreaker, the group's revenues grew by 6 percent from the year-ago quarter in reported terms and by 8 percent in constant currencies.

The group's adjusted gross margin climbed by 0.9 percentage points to 53.1 percent during the quarter, driven by a favorable mix and gains on foreign currency translations, while the adjusted operating margin improved by 0.4 percentage points to 17.9 percent. VF's net income jumped by 28 percent to $649.0 million. Excluding divestitures, acquisitions and costs related to the move of VF's headquarters to Denver, net income went up by 56 percent.

The management said the group benefited from a relatively strong environment in the U.S. at the consumer level, adding that it expects a healthy autumn and holiday season. By contrast, the industrial and manufacturing sectors have weakened over recent months, resulting in more tempered growth expectations across the more cyclical parts of the company's Work portfolio, which is led by Dickies. The group's Work division recorded a drop in revenues of 4 percent to $435.6 million in the latest quarter.

In the EMEA region, uncertainty related to Brexit continued to impact consumer confidence, said the company, resulting in a slight deceleration in the U.K. market for the group. Across the rest of Europe, the performance has been generally solid. In Asia-Pacific, brands continued to perform well, especially in China.

In a conference call, the management also reported that the relocation of its headquarters to Denver is now complete.

By channel, international revenues were up by 8 percent overall in constant currencies in the quarter, including a 5 percent gain in EMEA. VF also booked increases of 8 percent in the U.S. as well as in other parts of the Americas, and of 16 percent in Asia-Pacific.

Overall, direct-to-consumer (DTC) revenues gained 12 percent, including an 18 percent hike in digital sales. Wholesale revenues rose by 6 percent.

The North Face pulled off a 10 percent increase in revenues in constant currencies, including a 9 percent gain in wholesale revenues and a 7 percent gain in DTC. The brand's comparable sales advanced by 6 percent, while revenues from e-commerce improved by 13 percent.

Both the Mountain Lifestyle and Urban Exploration segments performed well. Toward the end of the quarter, TNF launched Futurelight, which it described as the world's most advanced waterproof/breathable technology for outerwear. As we previously indicated, VF is now planning to adopt the Futurelight technology for a range of TNF shoes, called Activist, for the spring/summer 2020 season (more on Futurlight in the marketing section of the News Briefs in this issue).

TNF grew in all the regions with the U.S. up by 9 percent, Asia-Pacific up by 12 percent in constant currencies – including 12 percent growth in China – and EMEA up by 12 percent, boosted by a 60 percent jump in digital DTC and double-digit growth in Germany, Italy, Spain and France.

Again, Timberland did not perform as well as the group's other outdoor brands in terms of sales, which went up by one percent on a currency-neutral basis in the quarter. On a regional basis, they rose by 9 percent in the Americas and by 6 percent in Asia-Pacific, but declined by 7 percent in EMEA, where the management structure has just been changed (see the related article in this issue). The company said it continues to expect low-single-digit growth for Timberland this year, including slightly stronger growth in the second half as the brand's European business begins to improve.

Overall, VF's Outdoor segment grew by 4 percent to $1,525 million in reported terms in the quarter, or by 6 percent in constant currencies.

Led by Vans, the group's Active segment saw sales rise by 9 percent to $1,413 million, with an increase of 11 percent on a currency-neutral basis. Vans' expected deceleration is taking place at a more modest pace than previously projected. In constant currencies, Vans' sales grew by 16 percent for the quarter, lifted by a 15 percent increase in the U.S. and a 31 percent increase in Asia-Pacific. The brand's sales went up by 9 percent in the EMEA region. In particular, Vans' DTC revenues went up globally by 17 percent, lifted by a 24 percent increase in e-commerce.

VF warned that pressure from the U.S. tariffs on imports from China, changes in foreign exchange rates and the unrest in Hong Kong are offsetting any possibility of upside adjustments to the 2020 outlook. It maintained its sales guidance for the full year at $11.8 billion, up by 6 percent, excluding acquisitions or divestitures. The Active segment is seen growing by 7 to 8 percent, and the Outdoor segment by 5 percent, while Work should grow by 3 to 5 percent. In the Outdoor segment, a low-single-digit gain for Timberland is likely to temper robust growth of 8 to 9 percent at TNF.