After recording a loss and steep declines in revenues during its first fiscal quarter, VF Corp. bounced back in the second quarter, ended on Sept. 26, with a smaller decline in sales and a return to profits. The management said that year-to-date results have surpassed its expectations across all brands, driven by e-commerce and China.
It attributed this performance partly to progress in recent years on its digital transformation plan, with investments in the digital channel for marketing and sales.
While the global impact of Covid-19 continues, nearly all of VF’s retail stores in the EMEA and Asia-Pacific regions, including Mainland China, remained open during the second quarter.
In North America, 75 percent of all retail locations were open at the end of the first quarter and over 95 percent at the end of the second. Additional retail locations have re-opened since the end of the quarter, and currently all of VF’s North American retail stores are open. VF’s wholesale customers globally have re-opened almost all of their locations. The majority of VF’s supply chain is currently operational.
Hampered by store closures and other Covid-19 related restrictions, VF’s revenues fell by 18 percent from the year-ago quarter to $2,608 million, with a decline of 19 percent in constant currencies. However, this is much better than the 48 percent drop recorded in the first quarter. Net income reached $256.7 million, down from $649.0 million last year.
The gross margin fell by 3.4 percentage points to 50.8 percent, in part because of strong inventory clearance activity and currency headwinds.
Revenues in the Active segment fell by 16 percent in constant currencies, with sales declining by 11 percent at Vans. In the Outdoor segment, sales plunged by 24 percent. The segment comprises The North Face, which was down by 26 percent. However, the Work segment grew by 14 percent, led by a gain of 18 percent at Dickies.
The Americas, excluding the U.S., was the hardest-hit region, with group sales falling by 36 percent in constant currencies. The U.S. was down by 21 percent. In constant currencies, sales in the EMEA region fell by 20 percent, while they remained flat in Asia-Pacific, boosted by a 14 percent gain in China.
Overall, wholesale revenues declined by 19 percent, while direct-to-consumer sales fell by 17 percent. Online sales stood out, growing by 44 percent.
Because of elevated promotional activity, VF ended the quarter with inventories down by 10 percent from the prior year. It had approximately $2,700 million in cash and short-term investments in addition to $2,230 million remaining under VF’s revolving credit facility.
For the full year, revenues are expected to reach at least $9.0 billion, reflecting a decrease of around 14 percent on an adjusted basis. This includes low-single-digit growth in the second half, driven by a return to growth in the fourth quarter.