The star brand of the American group, The North Face, delivered a sales increase of more than 40 percent in dollar terms during the second quarter ended June 30, rising at similar rates in the U.S. market and in the rest of the world. It was partly aided by the growing internationalization of the brand, by the weakness of the U.S. dollar and by the strong development of company-owned TNF stores, whose sales jumped by nearly 50 percent.
The growth was particularly strong in Russia and China, where TNF recently took over the distribution and began to make use of the powerful existing logistic platforms of VF Corporation’s jeanswear division. Timothy Tarin, a former Puma executive, has been placed in charge of TNF’s Russian operation, which became operational with the Spring 2008 collection. Sales in Western Europe are still growing fast and bookings are still strong, especially in the Nordic countries, Germany and the U.K., but the growth rate is softening in Italy and Spain.
Company officials would not release details on the size of TNF’s European operations, but it seems that they overtook those of Columbia Sportswear already last year, after growing by 26 percent in dollars, reaching about €180 million in euros. Probably Quechua, the private outdoor brand of Décathlon, is the only bigger factor in the European market, which is apparently undergoing a polarization between upscale and low-priced brands.
Sales grew by 17 percent in the second quarter to $523.5 million for VF Corporation’s entire so-called Outdoor Coalition, which comprises TNF along with JanSport, Vans, Reef, Napapijri, Kipling, Eastpak and Eagle Creek. Vans’ sales were up by 14 percent, with an increase of about 20 percent for its retail operations.
On the other hand, the operating margin of the Outdoor Coalition dropped slightly to 9.8 percent - squeezed by the seasonality of the business, investments in advertising and the cost of starting up new stores. Twelve new stores were opened during the quarter for Vans, TNF and Napapijri, but they will contribute to push sales and profits in the second part of the year, especially in the critical 4th quarter.
TNF opened its third European company-owned store in Milan a few weeks ago, adding to its own store in Chamonix and to another one in Leipzig, which was taken over eight months ago from a franchisee. Two others are budgeted for the balance of this year, including one in Birmingham. In five years’ time, TNF should have about 50 company-owned stores and more than 75 franchises in Europe.
For the second half of the year, VF Corp. expects the revenues of the Outdoor Coalition to grow by 15 percent or more. It anticipates higher margins in the segment during the second half and for the full year, largely because of seasonal factors and the bigger contribution from its own stores.
For the group overall, net income was up by 27.0 percent to $103,978,000 in the second quarter, thanks in part to new acquisitions, but income from continuing operations was off by 1.7 percent to $104 million. Total revenues rose by 10.6 percent to $1,677.5 million, with foreign currency gains contributing about 3 percentage points. In dollar terms, sales outside the USA rose by 23 percent, and they are expected to be up by 19 percent for the full year.
The gross margin was up by 0.9 percentage points to 43.8 percent, which the company attributed to growth in its lifestyle brands and expansion in retailing and the wholesale business outside the USA. The revenues of company-owned stores grew by 15 percent to about $249 million with double-digit gains for TNF, Vans, Kipling, Napapijiri, John Varvatos and Lee brands.
VF, which intends to open a total of 90 own retail doors under different brands this year, is still forecasting growth of more than 20 percent annually in its own retail sales, making them rise from 14 to 22 percent of the total turnover in five years’ time. Further acquisitions, particularly in the broad outdoor and lifestyle segments, should also contribute to a rise in its overall annual sales from $7 billion to an $11 billion target over the same period. Sales outside the USA should rise to 33 percent of the total turnover from approximately 28 percent currently.
For this year, VF Corp. expects revenues of $7.9 billion and growth of 10-12 percent in earnings per share, which is better than previously forecast. Eric Wiseman, VF’s president and chief executive, said the group’s ability to deliver record sales and earnings in the present tough economic environment shows the strength and resilience of its business model, based on powerful brands, geographic diversity, a multi-channel sales strategy and excellent management.