The North Face ended the year with a relatively weak quarter, partly due to a strategic decision to ship fewer products to off-price channels in the Americas. The outdoor brand's sales were down by 7 percent for the three months, as its turnover tumbled at a low double-digit rate in the Americas and was off by a mid-single-digit rate in Asia-Pacific, but up at a high-teen rate in Europe.
The turnover of the Outdoor and Action Sports division at VF Corporation thus ended slightly below the group's guidance, but it was still up by 2 percent to $2,133.2 million for the quarter. The decline at TNF was compensated by buoyant demand for the Vans brand and robust sales at company-owned retail operations.
The revenues of the whole VF group were flat at about $3.3 billion for the quarter, an increase of 1 percent in constant currencies. VF said its turnover was affected by U.S. retail bankruptcies as well as strategic decisions to help clean up inventories in the region. Steve Rendle, who took over from Eric Wiseman as VF's chief executive at the start of the year, insisted in a conference call with analysts that the quality of sales had improved significantly. The progress was supported by the weather in December and January, which helped to clean up retail inventories for next year.
The Vans brand was a standout for the quarter with a sales rise of 14 percent and an increase in turnover in all regional markets, including a return to growth in Europe. With that, Vans' turnover reached about $2.3 billion for the full year, making it the largest in the VF group. Sales increased by 6 percent in dollars and by 7 percent in constant currencies for the year. Vans is expected to raise its sales at a low double-digit rate in constant currencies in 2017.
Vans moved slightly ahead of The North Face last year, although the outdoor brand's sales were also rounded off by VF to $2.3 billion, down by 2 percent in dollars and by 1 percent in constant currencies. The group is forecasting sales expansion at a mid-single-digit rate in constant currencies for TNF this year, rising at a mid-teen rate in Europe and at a mid-single-digit rate in the Americas and Asia.
The Timberland brand raised its turnover by 4 percent in the quarter, with increases in all three regional markets, including an underlying rise at a low double-digit rate in Europe. It enjoyed a 20 percent jump in apparel sales in Europe, further encouraging the VF group to try and replicate the European apparel strategy in other markets.
The brand reached total sales of $1.8 billion for the year, up by 1 percent. The management pointed to strong demand for Timberland Pro and predicted that it will continued to rise, thanks to growing spending on infrastructure. Timberland's sales are projected to expand at a low single-digit rate in 2017.
The operating income of the Outdoor and Action Sports division was flat at $384.8 million for the quarter and contracted by 3 percent to $1,226.2 million for the full year.
The quarterly revenues of the whole VF group were flat at $3.3 billion, and they were also flat for the year at $12.0 billion. Its quarterly gross margin improved by 0.9 percentage points to 49.1 percent but the adjusted operating margin was down by 0.9 percentage points to 15.3 percent, mostly due to exchange rate changes.
The adjustments relate to several one-off charges, starting with a pre-tax impairment charge of $80 million relating to the Lucy brand, which focuses on fitness and fashion apparel for women. The group has decided to wind down the operations of Lucy in 2017 and to merge it with TNF, as part of the outdoor brand's Mountain Athletics range. Rendle said that Lucy had built up customer loyalty but brand awareness remained low and limited to North America, while its performance had been uneven over the years. VF could leverage TNF's brand appeal and distribution to cover the same category more efficiently.
Other one-off charges detailed by VF include pre-tax restructuring charges of $58 million to align costs after the divestment of the group's contemporary brands business, which was among the changes that are reducing the scope of the group's operations, affecting its overall turnover. Another extraordinary item was a non-cash pension settlement charge of $51 million before taxes. The quarterly net income of the group went down by 15 percent to $264.3 million.
For the full year, VF's gross margin improved by 0.2 percentage points to 48.4 percent. Average prices were on the rise while product costs were lower and the mix shifted toward higher-margin products, but these benefits were mitigated by currency exchange rates and the impact of restructuring charges. On an adjusted basis, the gross margin was up by 0.4 percentage points and the operating margin decreased by 0.9 percentage points to 14.0 percent. The group's net income declined by 13 percent to $1,074.1 million for the year.
VF's guidance for 2017 calls for sales to increase at a low single-digit percentage rate, including about two points of negative impact from exchange rate changes. The turnover of the Outdoor and Action Sports division is projected to rise at a low single-digit percentage rate. Own retail sales should advance at a high single-digit percentage rate, with the addition of about 50 stores and mid-single-digit comparable sales growth, including a projected rise of about 25 percent in online sales.
The group is predicting a gross profit margin of about 48.6 percent for 2017, consistent with last year's margin on an adjusted basis, while the operating profit margin is predicted to land at about 14.0 percent. Earnings per share are projected to decline at a low single-digit rate, which would equate with a mid-single-digit percentage rise in constant currencies.
VF's focus for this year is squarely on Vans, TNF and Timberland, which VF expects to jointly grow at a high-single digit rate. It will put a lot of efforts into re-igniting growth of the TNF and Timberland brands in the Americas. Rendle predicted that the growth rates in Europe and Asia should nearly double in 2017, due to more investment in the group's largest and most profitable activities, particularly in China. Further details are to be unveiled at an investor day in March.