VF Corp., the owner of brands such as Vans, The North Face and Timberland, cut its overall sales guidance for the financial year ending in March 2022 to $11.85 billion from a previous $12.0 billion, as it once again lowered the forecast for its Active segment, led by Vans, while raising it for its Outdoor business, led by TNF. Sales in EMEA and China and the DTC channel are also expected to increase at lower rates than previously budgeted.

The new revenue guidance for the year, reflecting expected year-over-year growth of 28 percent in dollar terms, was announced during the release of results for the third quarter ended Jan. 1. Group revenue from continuing operations increased 22 percent at current and constant exchange rates to $3,624 million, in line with the company’s previous guidance.

TNF was the star of the quarter. Its sales went up by 28 percent, reaching a record level of more than $1.2 billion for the period, with double-digit increases in all the regions. In terms of local currencies, the brand’s sales rose by 20 percent in the U.S., by 28 percent in other parts of the Americas, by 41 percent in EMEA, and by 25 percent in the Asia-Pacific region. The management reported a good momentum for the brand, both on and off the mountain, just as it is about to change its top management. It mentioned strong sell-throughs for outerwear and footwear, driven by key technologies such as Futurelight and Vectiv. TNF’s collaboration with Gucci was outstanding, generating over 2 billion impressions.

In terms of sales channels, wholesale performed better globally than DTC with a gain of 37 percent versus 20 percent, thanks to some second-quarter orders being pushed forward. This was not the case in Europe, where wholesale and DTC increased by 51 percent and 34 percent, respectively. As Covid-related lockdowns were relaxed, TNF’s sales through the DTC channel in Europe were even 19 percent higher than in 2019. Online sales grew by 35 percent on an annual basis in the quarter, after a triple-digit gain in the year-earlier period.

Excluding acquisitions, meaning essentially Supreme, VF’s total revenues in the quarter were up by a reported 15 percent and by 16 percent in constant currencies. The overall growth was driven by the EMEA and North American regions, which had suffered from Covid-19 restrictions in the previous financial year. VF opines that Supreme will add around $600 million to the company’s revenues this year.

VF’s net earnings for the quarter jumped by 49 percent to $517.8 million, and they were up by 45 percent on an adjusted basis, coming in higher than what analysts had expected. For the full financial year, adjusted earnings per share, excluding exceptional reorganization costs of $52 million, are expected to be around $3.20, including a contribution of about 25 cents from the Supreme brand, which was acquired in December 2020. That would amount to a 145 percent jump in net profit to around $1.26 billion.

The adjusted gross margin is projected at 55 percent or more, representing an estimated increase of at least 1.7 percentage points, while the adjusted operating margin is now anticipated at above 13 percent, five full percentage points more than in the previous year.

Better margins and mixed sales performance in the quarter

The gross margin from continuing operations rose by 1.4 percentage points in the latest quarter to 56.1 percent, mainly due to reduced promotional activity, which offset incremental freight costs. The adjusted gross margin inched up by 0.6 percentage points to 56.3 percent and included a 0.2 percentage point impact from acquisitions. The adjusted operating margin widened by 2.3 percentage points to 17.7 percent in the quarter.

VF said the majority of its supply chain is currently operational. While Covid-19 related manufacturing constraints continued in the third quarter, VF expects to be back to nearly full capacity in the coming weeks. At the same time, however, product delays are ongoing due to continued port congestion and other logistics difficulties.

Management indicated that VF is working to diversify its sourcing while discontinuing previous raw materials and products orders. A greater number of carriers and ports are being used. Cargo planes are even chartered when needed.

In the Outdoor segment, revenues increased by 23 percent on both a reported and currency-neutral basis, reaching $1,928.4 million, with a 27 percent increase in constant dollars for The North Face and an 11 percent gain for Timberland. Benefitting strongly from a collaboration with Supreme, Timberland grew by 18 percent in the U.S. and 14 percent in Europe but fell by 11 percent in Asia-Pacific due to a drop of 17 percent in China. The segment’s operating income grew by 44 percent to $450.4 million.

In VF’s Active segment, the quarterly revenues went up by a reported 25 percent to $1,410.6 million, or by 26 percent at constant currency rates, reflecting an increase of only 8 percent for Vans, whose sales were previously growing at double-digit rates, and a contribution of 17 percentage points from acquisitions. The segment’s operating profit increased by 26 percent to $245.5 million, including Supreme’s $54.2 million contribution.

The revenues of the Work segment, which is now represented mainly by Dickies, rose by 6 percent on a reported basis and by 5 percent in constant currencies. They fell by 40 percent in Europe due to a planned realignment in the region, including the closure of factory outlet stores.

On a geographical basis, VF’s total sales in the U.S. were up by 17 percent, while international revenues grew by 19 percent or 20 percent in constant dollars. On a constant-currency basis, sales in Europe went up by 28 percent, but they decreased by 9 percent in Greater China and by 12 percent in Mainland China.

Direct-to-consumer (DTC) revenues jumped in the quarter by 30 percent in both reported and constant-currency terms, including a contribution of 13 percentage points from acquisitions. Digital revenues were up by 21 percent compared with the year-earlier period, with acquisitions contributing 18 percentage points to the growth. Excluding acquisitions, digital revenue increased 61 percent compared to two years earlier, before the pandemic.

A mixed sales outlook

For its Active segment, VF now expects revenue growth in the fiscal year ending in March of between 31 and 35 percent, down from previous guidance of 35 to 37 percent. Earlier in the fiscal year, VF had projected that this business would grow by up to 39 percent.

The management has become more optimistic about the revenues from its Outdoor business, which are seen growing by 26 to 28 percent for the year, up from previous expectations of 25 to 26 percent and 24 to 26 percent before that. TNF’s top-line growth is projected at 29 to 30 percent compared with 27 to 29 percent prior guidance. VF continues to see its Work business rising by 19 to 21 percent.

VF also downsized its expectations for DTC sales. It now anticipates a rise of 32 to 34 percent in sales via this channel, below the previously forecast range of 34 to 36 percent, with growth of over 15 percent in its DTC digital channel, compared to a previously projected rate of about 20 percent. The wholesale business is expected to grow at a 23 to 25 percent clip, compared with the previously guided rate of about 25 percent.

For the group’s international sales, the management is now anticipating 22 to 24 percent growth for the year, down from as much as 27 percent earlier in the financial year. Revenue growth expectations for the EMEA region have been cut to 28 to 30 percent from 30 to 32 percent in previous guidance. Those for the Asia-Pacific region have been trimmed to 7 to 9 percent from 12 to 14 percent. Expectations for revenue growth in non-U.S. markets in the Americas were instead lifted to 33 to 35 percent from 30 to 32 percent. VF also foresees 33 to 35 percent growth in the U.S.