The North Face has been enjoying strong sell-through at retail, leading to pre-orders that were up by a low-double-digit rate at the end of June. This came after a robust performance in the second quarter, during which the outdoor brand's turnover increased by 14 percent in dollars and by 16 percent in constant currencies.
While discussing VF Corporation's quarterly figures, the company's managers said that European retailers have remained cautious, but TNF had grabbed market share as its European turnover expanded at a mid-teens rate in constant currencies for the quarter.
Online stores were launched in Italy and Spain, leading to a jump of 75 percent in online revenues. More online stores will be launched in Ireland, Germany, the Netherlands and Austria in the second half. Another retail investment was the opening of TNF's store in Warsaw.
TNF's sales were up at a high-teens rate in Asia, and by a mid-teens rate in the Americas, driven by product innovation and sharper in-store marketing. Furthermore, TNF has been expanding in the Americas through the diversification of its range beyond the outdoor and snow sports markets. It enjoyed sales increases of 18 percent for technical running apparel and 21 percent for yoga training apparel, and expanded in mountain biking clothing as well.
VF's management is confident that TNF will achieve its target of mid-teens sales growth in constant currencies for the full year, to reach a turnover nearing $2 billion.
TNF's continued rise contributed to the growth of the VF group's Outdoor and Action Sports unit, which saw its sales jump by 45 percent to just over $1 billion for the quarter. This includes the acquisition of Timberland, which added quarterly sales of $239 million with the Timberland and Smartwool brands. Without that, the turnover of the Outdoor and Action Sports unit advanced by 12 percent in dollars and by 16 percent in constant currencies, with growth across the Americas, Europe and Asia.
Another strong factor in that unit was Vans, which achieved a sales increase of 25 percent for the quarter, or a rise of 29 percent in constant currencies. Sales increased at double-digit rates in the Americas, Europe and Asia, with the launch of the “66” footwear range. Both TNF and Vans improved their own retail sales, which were up by 9 percent for the outdoor brand and by 18 percent at Vans for the quarter.
On the other hand, as anticipated, sales were flat for Timberland in the quarter in dollars, and they inched up by 2 percent in constant currencies. The brand lifted its sales at a low-single-digit rate in Europe, owing to the demand for its “Earthkeepers” range, women's products and online sales. In the second half, another 30 Timberland stores are to open, 20 of them through distributors and the others through franchises.
Timberland's turnover increased at a mid-teens rate in Asia, but it declined slightly in North America for the quarter. VF has been working to integrate Timberland into its own organization: It has been making strides in structuring an apparel team for Timberland, and is now slightly ahead of its targets in terms of cost synergies. Timberland's Asian head office has been relocated from Singapore to Hong Kong.
Excluding Timberland, the operating income of the Outdoor and Action Sports unit climbed by 22 percent and its operating margin was up by 1.1 percentage points to 13.6 percent. On a reported basis, operating income was down by 8 percent to $82.5 million and the operating margin only reached 7.9 percent, and this was attributed to the seasonal aspect of Timberland's business and expenses related to its acquisition.
VF as a whole lifted its sales by 16 percent to $2.1 billion for the second quarter, including Timberland. Without that, sales would have advanced by 3 percent in dollars and by 6 percent in constant currencies, as the inflated sales in the Outdoor and Action Sports unit more than made up for a decline of about 3 percent in VF's jeanswear business, down by 1 percent in constant currencies.
The entire group's gross margin was better than expected, rising by 0.2 percentage points to 46.1 percent for the quarter, even though a factory closure added more than 0.6 percentage points to the group's gross margin at the same time last year. The improvement chiefly came from the U.S. jeans business, which improved its gross margin by 1.0 percentage points.
The company expects its gross margin to increase in the second half and particularly in the last quarter. It had previously predicted that its gross margin would improve by about 0.7 percentage points for the full year, but now expects that the gross margin will end the year up by about 0.8 percentage points, chiefly owing to mix improvements.
VF ended the quarter with net income of $123 million on an adjusted basis, which excludes expenses related to the acquisition of Timberland and gains on the sale of John Varvatos, a fashion brand. This amounts to a decline of about 3.8 percent compared with net income of $129 million for the same quarter last year.
For the first half of the year, the group's sales jumped by 24 percent to $4.7 billion, but again this included a contribution of $595 million from Timberland. Excluding that, half-year sales were up by 8 percent in dollars and by 10 percent in constant currencies.
Sales of the Outdoor and Action Sports group were up by 53 percent for the six months, with organic sales growth of 13 percent in dollars and 16 percent in constant currencies. For the full year, the company predicted that this unit would achieve an organic growth in the low to mid-teens rate in constant currencies.
VF Corp. expects that its sales for the full year will rise by about 15 percent to $10.9 billion, with an increase of 17 percent in constant currencies and about 1 billion added by Timberland. Excluding that contribution, the group's sales should increase by about 6 percent in dollars and by 8 percent in constant currencies. VF slightly increased its projection for earnings per share for the full year to $9.50 per share, against an earlier forecast of $9.45 per share.
Poor quarter for Lafuma
After rising for six consecutive quarters, the revenues of the Lafuma Group declined by 11.4 percent in the third quarter ended June 30 to €38.8 million, as compared to the same period a year ago.
The management blamed unfavorable weather conditions and the poor economy in Europe. All the divisions recorded sales decline except for its “country pole, represented by Le Chameau, which was essentially stable.
Without providing the bottom line, as usual, Lafuma said it still enjoyed a sales increase of 2.9 percent to €171.1 million for the first nine months of its financial year. However, its sales in France and the rest of Europe declined by 1.3 percent for the period.
Elsewhere, the French group raised its sales by 9.3 percent, with a particularly strong performance in Asia. Lafuma announced a new licensing and distribution deal for Lafuma branded apparel in Japan with World Co. The deal involves the development of dedicated collections and the opening of Lafuma stores in the country.