Sales of VF Corp.'s outdoor and action sports division, with brands ranging from The North Face to Timberland and Vans, among others, advanced in the first quarter by 2 percent to $1.6 billion, which amounted to a rise of 10 percent in constant currencies.
Quarterly sales for The North Face increased by just 1 percent in dollars but by 7 percent in constant currencies, with a 20 percent jump in own retail sales. The improvement was driven by products such as Thermoball, the FuseForm range and The North Face's athletic mountain range, which is helping to diversify the brand's seasonal offering.
The brand's turnover jumped at a high single-digit rate in Europe, although this meant a low double-digit decline in reported terms. It was supported by a sharp increase in own retail sales, with comparable store sales up by more than 25 percent in Europe.
The North Face's sales enjoyed an underlying increase at a mid-single-digit percentage rate in the Americas. Its own retail sales climbed by more than 10 percent in the region, with increases in traffic as well as conversion. Buoyant online sales are to be supported by a new website for The North Face, using the same platform as the Vans and Timberland brands. The brand's turnover was up at a low double-digit percentage rate in constant currencies in the Asia-Pacific region, with increases in both wholesale and retail sales.
Steve Rendle, the VF group's senior vice president for the Americas, said in a conference call that inventories in the brand's own stores were very clean. He attributed this to strong sell-through in the cold weather months.
Vans lifted its sales by 16 percent in constant currencies for the quarter and by 8 percent in reported terms, with increases in both wholesale and retail sales and across footwear and apparel.
The action sports brand's sales in the Americas region enjoyed an underlying increase at a high-teen percentage rate, with a rise of more than 20 percent in wholesale turnover.
VF was enthused about the take-up for the action sports brand's Mountain Edition range, which is helping to diversify its offering. Moving beyond canvas, the range with technical weather-proofing and heat retention features was said to have sold out in its first season, fuelling strong demand for its second year. Other strong points for Vans are the spread of its products in more North American sports stores and smart marketing moves such as pop-up stores at events.
European sales for Vans inflated at a mid-single-digit rate in constant currencies, with expansion of more than 20 percent in own retail sales. This underlying rise in Europe turned into a low double-digit sales decline in dollars. Vans remained most buoyant in Asia-Pacific, where its turnover climbed by more than 45 percent in constant currencies. VF's management referred to smart localized products and sharp presentation at retail.
When it comes to Timberland, the brand's sales were flat in dollars but they grew by 10 percent in constant currencies, with a 16 percent rise in its wholesale business. This wholesale expansion buoyed sales in the Americas, where Timberland's turnover advanced at a high-teen percentage rate. VF launched a new website for Timberland last month, which had an encouraging impact in terms of traffic and conversion.
In Europe, the brand enjoyed an underlying sales increase at a low single-digit rate, albeit turning into a mid-teen rate decline in dollars. Karl Heinz Salzburger, in charge of VF's international business, said that Timberland's European sales rise was supported by capsule products and casual products for women. The early results of a new Timberland website were encouraging in Europe.
The Asia-Pacific region delivered a sales increase at a high single-digit rate for the quarter in constant currencies for Timberland. Apparel sales were strong for the Timberland brand in the region, driven by outerwear and tops.
Still within VF's outdoor and action sports business, the company's chief executive, Eric Wiseman, singled out Eastpak as the group's fastest-growing brand for the quarter. Other brands in this category include Jansport, Smartwool, Napapijri, Eagle Creek, Lucy and Reef.
Operating income for the outdoor and action sports division advanced by 7 percent in constant currencies but in reported terms it fell by 5.0 percent to $260.8 million. This amounted to an operating margin of 16.2 percent, down by 1.2 percentage points. Apart from the changes in currency exchange rates, VF mentioned more investments in own retailing, with 116 extra stores at the end of the quarter compared with the same time last year.
The entire group's sales reached $2,803 million for the quarter, which was an increase of 2 percent in dollars and 8 percent in constant currencies. This included an increase of 9 percent in international sales, with rises of 4 percent in Europe, 17 percent in Asia-Pacific and 16 percent in the Americas outside of the U.S. Own retail sales jumped by 11 percent in constant currencies. Without changes in exchange rates, the performance for the other categories included an increase of 6 percent for jeans and 3 percent for sportswear, with the Nautica and Kipling brands.
Aided by a cold spring that helped to clean inventories, VF still predicts low double-digit currency-neutral sales expansion for The North Face for the full year. The group forecasts a mid-teens increase for Vans and an unchanged forecast of a low-teen percentage rate increase for Timberland. The entire outdoor and action sports division is still projected to raise its turnover at a low double-digit rate in constant currencies.
The group's gross margin dipped by 0.4 percentage points to 49.0 percent for the quarter, as currency exchange rate changes erased benefits from the continuous improvement in sales mix. VF still predicts that its gross margin will rise by 0.7 percentage points to 49.5 percent for the full year in constant currencies, amounting to 49.2 percent in reported terms. The 49.5 percent margin amounts to the target set by the company for 2017, which it would reach this year in constant currencies two years ahead the plan.
VF's operating margin slipped by 0.5 percentage points to 14.0 percent. Net income was down by 2.9 percent to $288.7 million and earnings per share were flat in reported terms. They are predicted to increase to $3.20 for the full year, up by 4 percent compared with adjusted earnings per share last year. Without currency exchange rates, earnings per share were up by 13 percent for the quarter and are projected to increase by 14 percent for the year – which is an improvement on the previous forecast of a 12 percent increase.
VF remains bullish about the prospects for its larger sports and outdoor brands, eying sales of $2.3 billion for The North Face in a market estimated at $26 billion for outdoor performance and a turnover of about $2.0 billion for Vans in an action sports market pegged at $29 billion. The outlook for Timberland calls for sales of $1.8 billion in a market valued at $36 billion for outdoor lifestyle products.