The North Face finished the year with a whopping rise in European demand, as its sales soared by 38 percent in Europe, the Middle East and Africa (EMEA), amounting to a jump of 32 percent in constant currencies.
The outdoor brand's European sales have been growing at a double-digit rate for eight quarters in a row. As the brand intensified its retail partnerships, its European wholesale business moved up by over 40 percent. Its own retail sales increased at a mid-teen rate, spurred on by an online sales increase of almost 30 percent.
This was a standout regional performance as TNF's global sales increased by 6 percent for the quarter in constant currencies – and half of that came from the favorable impact of a shift in the timing of deliveries. The brand's wholesale business was up by 4 percent, while its own retail sales moved up by 8 percent, including an increase of 14 percent for digital sales.
While European sales soared, they were down by 1 percent in the Americas, due to contracting wholesale orders. They increased by 8 percent in Asia-Pacific, including the negative impact of structural investments in China. The Asian rise was entirely due to a 30 percent jump in retail sales, while the brand's Asian wholesale business was affected by pro-active inventory management.
TNF's global quarterly performance was below the guidance previously issued by VF Corporation, the owner of TNF. The group explained in a conference call with analysts that it reduced its promotional activity and stepped up “aggressive efforts” to clear Amazon of unauthorized dealers. This came after TNF agreed about five months ago to work directly with the online retailer in the U.S., as it has already done in Europe.
This clean-up was part of TNF's efforts to reinforce its brand, to generate stronger margins for the company and its retail partners. Excluding lower off-price sales, the impact of the Amazon moves and investments in China, quarterly sales were up by 8 percent – without the benefit of the shift in timing.
For the full year, TNF saw its European sales climb by 23 percent in constant currencies. A large part of the increase was generated by the Urban Exploration range, and particularly the Black Series. The European uptick compared with a global sales increase of just 3 percent. It was dragged down by a decline of 3 percent in the Americas, while sales in Asia-Pacific increased by just 3 percent, with buoyant demand for the Urban Exploration range.
After a strong start to 2018, VF reiterated its 2021 targets for the brand, adding that TNF's growth for 2019 should be in line with the 6 to 8 percent range laid out at its latest Investor Day.
The outdoor and action sports brands in VF Corporation generated a sales increase of 16 percent to $2.5 billion for the fourth quarter. This was a rise of 13 percent in constant currencies, with a remarkable increase of 35 percent for Vans and 8 percent for Timberland. The division's operating profit for the three months landed at $486.3 million, up by 24 percent.
For the full year, the outdoor and action sports division's sales added up to $8.2 billion, which was a rise of 8 percent in reported terms and 7 percent in constant currencies. On this basis, the sales jump of 3 percent for TNF was accompanied by increases of 19 percent for Vans and 1 percent for Timberland. These three big brands together grew at a combined rate of 8 percent.
VF said that Napapijri had been another standout, after the group applied an incubator concept for the brand. Napapijri has been growing at double-digit rate for several quarters. The division's operating profit amounted to $1,378.3 million for the year, an increase of 11 percent in reported terms and 15 percent in constant currencies.
Adding its denim and fashion business, the entire VF group generated stronger than expected results in the fourth quarter and the full year. Its sales were up by 7 percent to $11.8 billion in 2017, including two percentage points of growth contributed from the Williamson-Dickie acquisition.
The group's gross margin from continuing operations moved up by 1.2 percentage points to a record of 50.5 percent in 2017. On an adjusted basis, the gross margin was up by 1.0 percentage points to 50.5 percent.
Operating income moved up by 10 percent to $1,503.1 million, but the group ended the year with profit of just $614.9 million, down by 43 percent, chiefly due to a tax adjustment. The company also reported a loss of $106.3 million from discontinued operations, which included the Nautica brand. VF announced last week that it intended to sell the brand and it reported Nautica as a discontinued business.
Steve Rendle, VF's chief executive since the start of last year, said that 2017 was a transformational year for the group, as it embarked on a program to become more customer-focused and to adjust to the far-reaching changes in the retail market. Its own and wholesale digital sales increased by more than 25 percent, accounting for 55 percent of the group's growth. Own retail sales as a whole increased by 15 percent, with comparable growth of 12 percent, which raised the percentage of retail sales to 30 percent of VF's global revenues.
VF's strong performance for the year enabled it to reinvest about $100 million back into its business, to take advantage of the current drive and to accelerate growth. Most of that went to extra capability for its consumer-centric strategy.
Among its top priorities for the year, VF wants to protect the soaring growth at Vans and to support further expansion for TNF and Timberland, particularly in North America. Another priority is to integrate Williamson-Dickie and Icebreaker. VF announced an agreement late last year to acquire the New Zealand merino brand. VF said it would bring in sales of about $150 million, forming a merino business of about $300 million with the Smartwool brand. The deal should be accretive from the first year, albeit at a small level for the group.
At the same time, VF has realigned the functions of group presidents, meaning that each of them will be responsible for one geographic region and have one global brand reporting to them.